In this blog, we will do the qualitative analysis of the only two listed Asset Management Companies(AMCs) in Indian stock market – HDFC AMC vs NIPPON AMC.
HDFC AMC vs NIPPON AMC
Let us start with market capitalization and price to earnings ratio of both the companies.
- HDFC AMC’s market capitalization is almost more than 3 times the market capitalization of Nippon India.
Price to Earnings ratio
- Both the companies were trading in similar range of PE few days back. But there was a correction in Nippon AMC price, leading to lower PE.
Let us dig deeper into the qualitative parameters of the AMC industry and compare these two AMCs.
Quarterly Average AUM (QAAUM) :
- Industry’s AUM declined 8.8% on QoQ basis in Q1FY21.
- HDFC AMC’s Quarterly AUM declined 3.4% on QoQ basis, whereas market share increased by 0.8% to 14.5%.
- Nippon AMC’s AUM declined 12.2% on YoY basis and market share also declined by 0.3% to 7.3% in Q1FY21.
Actively managed Equity oriented quarterly average AUM:
- Actively managed AUM is the cash cow for these AMC’s. So AMC which has higher expense ratios, earns higher.
- Industry’s actively managed QAAUM declined 14% on QoQ basis in Q1FY21.
- HDFC AMC’s actively managed QAAUM fell 17.8% on QoQ basis mainly because of market fall. Also, its market share fell by 0.7% on QoQ basis.
- Nippon AMC’s actively managed QAAUM fell 20.5% on QoQ basis and it lost 0.7% market share in this quarter.
Comparing QAAUM mix:
- If we compare equity and debt allocations of HDFC AMC and Nippon AMC with industry average, both the funds have similar allocations for equity and debt funds.
- As seen, HDFC AMC is mainly focussed on equity, debt, and liquid funds. It is the largest liquid fund.
- Nippon AMC is mainly focussed on equity, debt, and other funds.
SIP Inflows :
- On an Industry basis, there has been a fall of 8-9% from March’20 in SIP inflows.
- HDFC AMC has registered a fall in its SIP book from June’19 to June’20. The main reason behind this could be the performance of their funds majorly under performance by funds managed by Mr Prashant Jain and Mr Chirag Setalvad. Also the correction in indices and categories have affected the SIP inflows.
- Even Nippon Life AMC reported a fall of ~18.5% in SIP inflows from March’19 to June’20.
- This is a worrying sign for both the companies if SIP book penetration reduces as compared to industry.
- NIPPON AMC has 34 lakh active SIPs as of June’20, greater than that of HDFC AMC which has 31.1 lakh active SIPs in June’20.
- It has managed to register a growth of 2 lakh SIPs on QoQ basis, where as HDFC AMC’s SIP count has reduced ~1.8 lakhs.
Individual Investors Monthly Average AUM (MAAUM):
- HDFC AMC’s MAAUM declined by ~12% on YoY basis on a higher base. However HDFC AMC still has higher retail participation as compared to NIPPON AMC. The major reason can be the underperformance of the funds as compared to industry.
- NIPPON AMC’s MAAUM has declined by 16% on YoY basis whereas it increased 4.5% on QoQ basis. However as compared to HDFC AMC, NIPPON AMC’s retail participation is quite less.
Most Preferred choice of individual investors – Top 5 AMCs
- The most preferred choice is HDFC Mutual fund with a market share of 14.6%, followed by ICIC Prudential , SBI Mutual fund, ABSL Mutual fund and NIPPON Mutual fund.
- However, HDFC Mutual fund has lost considerable market share of 1.1% on YoY basis.
- SBI Mutual fund is the only gainer increasing its market share by 2.1% on YoY basis.
- Unique investment is basically investment done per pan card. For example if I have invested in 3 funds with one pan card, then the unique investment remains 1 and not 3.
- Here Nippon India unique investors are 61 lakh as of June’20. Market share of NIPPON AMC in unique investors is 29% which is marginally higher than that of HDFC AMC.
Geographic spread as of June’20:
- HDFC AMC’s ~87% allocation comes from top 30 cities ,whereas ~13% allocation comes from below 30 cities. This is lesser as compared to industry allocation from below 30 cities.
- This should increase for HDFC AMC as they should tap the under penetrated markets of below 30 cities.
- NIPPON AMC has good allocation from below 30 cities of 17.3%.
Below 30 cities market share:
- SBI Mutual fund is a market leader here having a market share of 21% , followed by HDFC AMC.
- As seen, although NIPPON AMC has a good allocation from below 30 cities, it is not a part top 5 below 30 cities market share.
- Direct channel accounts the most for HDFC AMC distribution. Liquid mutual fund sales are a major part of direct channel sales. Majority of bank distribution is done by HDFC bank as shown.
- For NIPPON AMC as well, Direct channel constitutes 52% allocation which is higher than HDFC AMC. Allocation by national distributors is comparatively lesser for NIPPON AMC.
Digital Presence (as of June’20):
- HDFC AMC is majorly dependent on digital transactions, which are accounting for 91%.
- NIPPON AMC has comparatively lower digital transactions(56% of total transactions).
- This is not a positive sign for NIPPON AMC and might be the reason for lower margins of NIPPON AMC as compared to HDFC AMC as physical transactions are more cost intensive.
- 82% of HDFC AMC’s SIP book is for tenure over 5 years, whereas 70% of the book is for tenure over 10 years.
- 83% of NIPPON AMC’s SIP book is over 5 year is for tenure over 5 years, whereas 79% of the book is for tenure over 10 years.
- However, the stickiness of customers for a longer term SIP book should also be considered.