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ANCHOR REPORT
EQUITY: FINANCIALS
Source: Bloomberg, Nomura estimates. Note: Share price is as of 2 August 2018 close.
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Nomura | India financials 3 August 2018
Contents
2
Nomura | India financials 3 August 2018
Executive summary
AMCs: A structural story ahead
We think increasing mutual funds share in financial savings is a structural story and has
become a mainstream investment mode with SIPs on the rise. SIP monthly book is
INR75bn as of Jun-18 and continues to grow stronger forming 10% of equity AUM now.
While there may be cyclicality risk in the lump sum equity investment in the near term,
we think the product continues to be most cost competitive and distribution is improving
with regulators pushing the AMCs to cut on costs as well as rewarding penetration.
Flows increased but a long way to go
Penetration levels for MF are still very low at 12.7% (AUM to GDP), and we estimate
only 10% of India’s households invest in mutual funds. Also, when compared to MF
share in financial savings, levels remain very low at 5-7% vs 20-25% for life insurance.
We expect financialisation of savings to continue, with financial savings share improving
from 50% now to 60% by FY25F and MF to be the largest beneficiary of that with
penetration levels improving to 22% by FY25F – still lower than emerging countries. With
this we see a 20% AUM CAGR opportunity for the industry, with the equity mix improving
further to 50% from 43%.
Addressing investor concerns
While the tailwinds are largely known, we try and address a few investor concerns in this
note and detail why we think the structural tailwinds outweigh the cyclical headwinds.
• Is the growth structural? We think MF has now become the mainstream investment,
as it competes across all investment product categories: fixed deposits, savings
deposits and ULIPs (unit-linked insurance plans). SIP continues to strengthen and now
forms 10% of equity AUMs. Despite exceptionally strong flows in the past 3-4 years, the
penetration levels when compared with household participation, its share in financial
savings and GDP remains very low (hence we see no risk of passive flows in the
medium term), and so we see a 20% AUM CAGR opportunity over FY18-25F.
• Can equity mix improve sustainably? Penetration levels are even lower when looked
at equity AUMs, and with SIP share increasing (largely equities-driven) and penetration
levels improving we think equity mix will improve sustainably while near-term cyclicality
cannot be ruled out. We expect equity mix to improve by 100bps p.a. to 50% by FY25F,
which would still be lower than the world average.
• Can the regulatory risk be mitigated? The regulators have always focused on
investor-friendly measures, hence they have been cutting costs which remains a key
risk to yields. But we think operating leverage as well as improving equity mix and
increasing direct share will mitigate regulatory risks on yields.
• Manufacturers vs distributors: With distribution costs rising, increasingly we think the
distributor has the real bargaining power, as the distribution pool is common for the
industry. We think the industry will have to consolidate over time with such thin margins
left, and that will increase the bargaining power of the manufacturer and an increasing
direct share will reduce dependence on the distributor.
Our valuation framework
We believe AMCs in India deserve a substantial premium compared with AMCs in
developed countries, as the share of passive flow in the US is very high and, hence,
profitability is depressed. Also, household penetration in the US is at 45% levels vs. 10%
for India. Additionally, AMCs in the US act only as fund managers and not as distributors;
hence, the business is more B2B-oriented compared with India, where a large part of the
distribution is also done by AMCs so the business is more B2C. We expect AUMs to post
a 20% CAGR over FY18-25F and equity mix to improve by 100bps p.a. to 50% by
FY25F; we expect earnings for the larger AMCs to compound at 20-25% over FY18-25F.
Also given that the capital requirement is very low at INR0.5bn, we expect these
companies to pay out +75% of their profits.
Given higher growth opportunity and full payout ability, we peg P/E multiples in the range
of 30-40x. We think AMCs deserve a significant premium to flow businesses where
cyclicality risks will be high. In contrast, AMCs earn on stock and, hence, the cyclicality
risk is relatively low.
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Nomura | India financials 3 August 2018
Story in charts
Fig. 2: Household savings to decline as the economy Fig. 3: Financial savings to continue to improve with real
matures estate demand muted
Household Savings (% of GDP) Financial savings (% of savings)
80% Physical savings (% of savings)
28% 26%
26% 24% 24% 24% 70%
23% 23%
24% 23% 22%
60%
22% 20%
20% 50%
18% 16% 16%
16% 14% 40%
14% 30%
12%
10% 20%
FY04
FY08
FY12
FY16
FY02
FY03
FY05
FY06
FY07
FY09
FY10
FY11
FY13
FY14
FY15
FY17
FY18
FY21F
FY20F
FY25F
FY30F
FY35F
FY08
FY12
FY02
FY03
FY04
FY05
FY06
FY07
FY09
FY10
FY11
FY13
FY14
FY15
FY16
FY17
FY18
FY25F
FY20F
FY21F
FY30F
FY35F
Source: RBI, Nomura estimates Source: RBI, Nomura estimates
Fig. 4: MF penetration still very low compared with emerging Fig. 5: Our expectation of improvement in MF penetration
as well as developed economies levels is still lower than the world average
India's Mutual Fund AUM (% of GDP)
AUM to GDP ratio - CY17 70%
180% World Average - FY16
155.4%
160% 60%
140%
114.2% 50%
120%
100% 40%
78.2% 73.0%
80% 62.7% 60.2% 30%
60%
36.1% 20%
40% 29.5%
13.8% 11.8%
20% 10%
0%
0%
Japan
Brazil
India
US
UK
China
Korea
Germany
Canada
Australia
FY03
FY10
FY17
FY02
FY04
FY05
FY06
FY07
FY08
FY09
FY11
FY12
FY13
FY14
FY15
FY16
FY18
FY21F
FY25F
FY30F
FY35F
Source: ICI Factbook Source: RBI, Nomura estimates, ICI Factbook
Fig. 6: We expect MF AUM CAGR of 20% over FY18-25F and Fig. 7: We expect equity mix to improve by 100bps annually
then normalise to 10-15% CAGR over FY25-35F to 50% by FY25F and stabilise beyond that
30% Mutual Fund AUM CAGR Equity AUM mix (% of GDP) Equity AUM mix (%) (LHS)
25.4% 60% 12%
25%
50% 10%
20.0%
20% 40% 8%
15.0%
15% 30% 6%
10.2% 20% 4%
10%
10% 2%
5%
0% 0%
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY21F
FY25F
0%
FY15-18 FY18-25F FY25-30F FY30-35F
Source: AMFI, Nomura estimates Source: AMFI, Nomura estimates
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Nomura | India financials 3 August 2018
Fig. 8: SIP book on a structural uptrend – forms 9% of equity Fig. 9: We expect lump-sum flows to moderate cyclically,
AUMs while the SIP flow momentum continues
3,000 Net Equity Flows -Non SIP (INRbn)
85 Industry SIP flow (INRbn) Net Equity Flows -SIP (INRbn)
2,500
75
2,000
65
1,500
55
1,000
45
500
35
-
25
(500)
Aug-16
Sep-16
Aug-17
Sep-17
Jul-16
Jul-17
Mar-18
Mar-17
Dec-16
Jan-18
Jun-16
Jan-17
Jun-17
Jun-18
Apr-16
Oct-16
Nov-16
Apr-17
Oct-17
Nov-17
Dec-17
Apr-18
May-16
Feb-17
May-17
Feb-18
May-18
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY21F
FY22F
FY23F
Source: AMFI, Nomura research Source: AMFI, Nomura estimates
Fig. 10: Overall macro construct – we expect 20% AUM CAGR over FY18-25F
2002 2008 2010 2014 2018 2021 2025 2030 2035 CAGR FY18-25F
Nominal GDP 24,038 48,657 63,187 113,451 167,731 233,736 347,065 510,934 666,616 11%
Real grow th (%) 9.96% 11.49% 9.60% 7.01% 4.44%
Household savings 5,453 11,183 16,308 22,853 27,099 37,061 53,643 76,416 96,367 10%
Savings (% of GDP) 22.7% 23.0% 25.8% 20.1% 16.2% 15.9% 15.5% 15.0% 14.5% -0.7%
994 1,000
Physical savings 2,978 5,381 8,560 14,532 13,549 17,419 23,066 30,566 38,547 8%
Financial savings 2,475 5,802 7,748 8,321 13,549 19,643 30,576 45,849 57,820 12%
Financial savings (% of savings) 45.4% 51.9% 47.5% 36.4% 50.0% 53.0% 57.0% 60.0% 60.0% 7.0%
Mutual Fund AUM 1,006 5,052 6,145 8,252 21,360 38,365 76,691 154,194 250,527 20%
% of GDP 4.2% 10.4% 9.7% 7.3% 12.7% 16.4% 22.1% 30.2% 37.6%
Equity AUM 326 1,890 2,156 2,085 9,219 17,710 38,345 77,097 125,263 23%
Equity AUM mix% 32.4% 37.4% 35.1% 25.3% 43.2% 46.2% 50.0% 50.0% 50.0% 6.8%
Grow th y/y 77.9% 10.1% 46.7% 23.4% 20.0% 13.0% 9.0%
Flow led AUM - equities (59) 527 15 (113) 2,608 1,755 2,512 3,014 4,208 -1%
Pricing Led AUM increase - equities 385 36 930 305 328 1,603 3,882 5,856 6,135 42%
Gross flow s (non SIP) % of Equity AUM 103.8% 57.3% 20.7% 72.0% 40.0%
Redem tions (% of Equiy AUMs) 64.1% 56.1% 32.1% 41.2% 34.0%
Source: World Bank, RBI, AMFI, Nomura estimates
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Nomura | India financials 3 August 2018
Fig. 12: Detailed macro projection – we still build in conservative penetration levels vs. other emerging countries currently
Our projections
INRbn FY14 FY18 FY20 FY25 FY30 FY35
Indian AUMs 8,252 21,360 31,778 76,691 154,194 250,527
CAGR % 37% 22% 19% 15% 10%
Equity AUM to GDP (%) 1.8% 5.5% 6.8% 11.0% 15.1% 18.8%
Equity AUM to Mcap (%) 2.8% 6.5% 7.9% 11.5% 14.3% 17.4%
Source: Nomura estimates
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Nomura | India financials 3 August 2018
Positive impact Equity Mix change Net yield difference Net impact
Equity mix change 10% 0.53% 0.053%
(1) Negative impact Increase in trail Gross yields Current Maturity Net impact
Higher trail coms 10% 1.29% 50% -0.064%
(2) Negative impact Gross TER reduction Pass on to Distributors Net impact
TER changes -0.15% -0.10% -0.050%
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Nomura | India financials 3 August 2018
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Nomura | India financials 3 August 2018
Fig. 14: Household savings to gradually decline as the Fig. 15: Financial savings to continue to improve with real
economy gets more matured estate demand muted
Household Savings (% of GDP) Financial savings (% of savings)
80% Physical savings (% of savings)
28% 26%
26% 24% 24% 24% 70%
23% 23%
24% 23% 22%
60%
22% 20%
20% 50%
18% 16% 16%
16% 14% 40%
14% 30%
12%
10% 20%
FY04
FY08
FY12
FY16
FY02
FY03
FY05
FY06
FY07
FY09
FY10
FY11
FY13
FY14
FY15
FY17
FY18
FY21F
FY20F
FY25F
FY30F
FY35F
FY08
FY12
FY02
FY03
FY04
FY05
FY06
FY07
FY09
FY10
FY11
FY13
FY14
FY15
FY16
FY17
FY18
FY25F
FY20F
FY21F
FY30F
FY35F
Fig. 16: MF penetration still very low as compared to Fig. 17: Our expectation of improvement in MF penetration
emerging as well as developed economies levels is still lower than world average currently
AUM to GDP Ratio - CY17 India's Mutual Fund AUM (% of GDP)
180% 70% World Average - FY17
155.4%
160%
60%
140%
114.2%
120% 50%
100% 89.6% 40%
78.2% 73.0%
80% 61.1%60.2% 62.7%
52.0%
30%
60%
36.1% 20%
40% 29.5%
13.8%11.8%
20% 10%
0%
0%
India
Japan
US
UK
Korea
Brazil
Germany
China
France
World
South
Australia
Canada
Africa
FY21F
FY25F
FY30F
FY35F
FY06
FY11
FY02
FY03
FY04
FY05
FY07
FY08
FY09
FY10
FY12
FY13
FY14
FY15
FY16
FY17
FY18
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Nomura | India financials 3 August 2018
70%
62%
60%
50% 45%
42%
39%
40%
30% 32%
29% 29%
30% 24% 25% 26%
23% 21%
20%
20% 16%
11% 13%
9% 8%
10%
3% 5% 3% 4%6%
0%
Fig. 19: Overall macro construct – we expect 20% AUM CAGR over FY18-25F
2002 2008 2010 2014 2018 2021 2025 2030 2035 CAGR FY18-25F
Nominal GDP 24,038 48,657 63,187 113,451 167,731 233,736 347,065 510,934 666,616 11%
Real grow th (%) 9.96% 11.49% 9.60% 7.01% 4.44%
Household savings 5,453 11,183 16,308 22,853 27,099 37,061 53,643 76,416 96,367 10%
Savings (% of GDP) 22.7% 23.0% 25.8% 20.1% 16.2% 15.9% 15.5% 15.0% 14.5% -0.7%
994 1,000
Physical savings 2,978 5,381 8,560 14,532 13,549 17,419 23,066 30,566 38,547 8%
Financial savings 2,475 5,802 7,748 8,321 13,549 19,643 30,576 45,849 57,820 12%
Financial savings (% of savings) 45.4% 51.9% 47.5% 36.4% 50.0% 53.0% 57.0% 60.0% 60.0% 7.0%
Mutual Fund AUM 1,006 5,052 6,145 8,252 21,360 38,365 76,691 154,194 250,527 20%
% of GDP 4.2% 10.4% 9.7% 7.3% 12.7% 16.4% 22.1% 30.2% 37.6%
Equity AUM 326 1,890 2,156 2,085 9,219 17,710 38,345 77,097 125,263 23%
Equity AUM mix% 32.4% 37.4% 35.1% 25.3% 43.2% 46.2% 50.0% 50.0% 50.0% 6.8%
Grow th y/y 77.9% 10.1% 46.7% 23.4% 20.0% 13.0% 9.0%
Flow led AUM - equities (59) 527 15 (113) 2,608 1,755 2,512 3,014 4,208 -1%
Pricing Led AUM increase - equities 385 36 930 305 328 1,603 3,882 5,856 6,135 42%
Gross flow s (non SIP) % of Equity AUM 103.8% 57.3% 20.7% 72.0% 40.0%
Redem tions (% of Equiy AUMs) 64.1% 56.1% 32.1% 41.2% 34.0%
Source: World Bank, RBI, AMFI, Nomura estimates
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Nomura | India financials 3 August 2018
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Nomura | India financials 3 August 2018
Fig. 20: We expect MF AUM CAGR of 20% over FY18-25F and Fig. 21: We expect equity mix to improve by 100bps annually
then normalise to 10-15% CAGR over FY25-35F to 50% by FY25F and stabilise beyond that
30% Mutual Fund AUM CAGR Equity AUM mix (% of GDP) Equity AUM mix (%) (LHS)
25.4% 60% 12%
25%
50% 10%
20.0%
20% 40% 8%
15.0%
15% 30% 6%
10.2% 20% 4%
10%
10% 2%
5%
0% 0%
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY21F
FY25F
0%
FY15-18 FY18-25F FY25-30F FY30-35F
Source: AMFI, Nomura estimates Source: AMFI, Nomura estimates
Fig. 22: We do not expect net inflows of FY18 to repeat over Fig. 23: Redemptions have averaged around 30-35% of
the next decade but expect SIP book to be on an structural opening AUM over the past decade: we expect them to
uptrend remain steady
3000 Net Equity Flows -Non SIP (INRbn) Gross flows (non SIP) % of Equity AUM
Net Equity Flows -SIP (INRbn) Redemtions (% of Equiy AUMs)
80%
2500
2000 60%
1500
1000 40%
500
20%
0
-500 0%
FY22F
FY15
FY11
FY12
FY13
FY14
FY16
FY17
FY18
FY19F
FY20F
FY21F
FY23F
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19F
FY20F
FY21F
FY22F
FY23F
Source: AMFI, Nomura estimates Source: AMFI, Nomura estimates
Fig. 24: Detailed macro projection – we still build in conservative penetration levels vs. other emerging countries currently
Our projections
INRbn FY14 FY18 FY20 FY25 FY30 FY35
Indian AUMs 8,252 21,360 31,778 76,691 154,194 250,527
CAGR % 37% 22% 19% 15% 10%
Equity AUM to GDP (%) 1.8% 5.5% 6.8% 11.0% 15.1% 18.8%
Equity AUM to Mcap (%) 2.8% 6.5% 7.9% 11.5% 14.3% 17.4%
Source: Nomura estimates
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Nomura | India financials 3 August 2018
Fig. 25: Overall market share – we expect some moderation in market share by the top-5
Market share - Total AUM FY07 FY08 FY10 FY14 FY18 FY19F FY20F FY21F FY25F chng FY18-25F
RNAM 13.5% 17.2% 14.8% 11.4% 10.6% 10.5% 10.3% 10.2% 9.8% -0.8%
ICICI 12.4% 10.3% 10.8% 11.8% 13.3% 13.4% 13.4% 13.4% 13.4% 0.1%
SBI 5.4% 5.5% 5.0% 7.2% 9.4% 9.6% 10.4% 10.1% 9.0% -0.4%
Birla 6.2% 6.8% 8.3% 9.8% 10.7% 10.5% 10.2% 10.1% 9.7% -1.0%
Top-5 market share 46.5% 48.2% 50.8% 52.8% 57.1% 57.1% 57.1% 56.6% 54.6% -2.5%
Source: Company data, Nomura estimates
Fig. 26: Equity market share – we expect some moderation in market share by the top-5
Market share - Equity FY07 FY14 FY18 FY19F FY20F FY21F FY25F chng FY18-25F
RNAM 12.5% 9.3% 9.0% 8.9% 8.6% 7.8% -1.4%
ICICI 10.7% 15.1% 15.0% 15.3% 15.0% 14.2% -0.9%
SBI 7.2% 7.9% 8.1% 9.0% 8.7% 7.5% -0.4%
Birla 5.9% 9.2% 9.0% 9.0% 8.8% 8.0% -1.1%
Top-5 market share 55.7% 57.4% 56.1% 56.5% 55.2% 50.8% -6.7%
Source: Company data, Nomura estimates
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Nomura | India financials 3 August 2018
Fig. 27: We expect larger market share loss for the non-bank Fig. 28: Non-banca players over the medium term will likely
AMCs lose more in equity market share as well
Total Market share loss - Banca Avg Equity Market share loss - Banca Avg
Total Market share loss - Non-banca Avg Equity Market share loss - Non-banca Avg
12.2% 12.1% 14.0%
12.5% 11.9%
12.0%
11.7%
12.0% 11.6%
11.3% 12.0% 12.8% 12.8% 13.0% 12.7% 12.9% 12.6%
11.5% 12.2% 12.5% 12.1%
10.8% 11.6%
11.0% 10.5% 9.4%
9.6% 9.5%
10.0% 9.2% 9.0% 9.2% 9.0%
11.1% 8.9% 8.7%
10.5% 10.0% 10.8% 10.9%
10.6% 10.7% 7.9%
10.0% 10.5% 10.5%
10.3% 10.2% 8.0%
9.5% 9.8%
9.0%
6.0%
FY13
FY14
FY15
FY16
FY17
FY18
FY19F
FY20F
FY21F
FY25F
FY16
FY13
FY14
FY15
FY17
FY18
FY19F
FY20F
FY21F
FY25F
Source: Company data, Nomura estimates Source: Company data, Nomura estimates
14
Nomura | India financials 3 August 2018
15
Nomura | India financials 3 August 2018
• While we do not rule out cyclicality in the near term given strong market returns, large
flows into equities and underperformance by larger equity schemes, we do not see
these risks over the medium term.
Fig. 29: Equity AUM penetration in India is very low Fig. 30: Equity AUM to market cap is also significantly lower
compared with emerging economies 60% 51% Equity AUM as a % of Market cap
70% 62% Equity AUM as a % of GDP 50% 42%
60%
45% 40% 34%
50% 27% 26% 26% 26%
30%
40% 32% 29% 29%
26% 25% 23% 20%
30% 9%
20% 10% 6% 4% 4%
11%
10% 5% 4% 3%
0%
USA
Japan
India
Germany
UK
Korea
China
Brazil
South Africa
Canada
France
0%
USA
Japan
India
UK
Korea
China
Germany
World
Brazil
South Africa
Canada
France
Fig. 31: We expect equity mix to improve to 50%, still lower Fig. 32: Mix improvement largely flow-led – financialisation of
than the current world average savings is evident
Equity AUM mix (%) (LHS) Pricing led AUM - Equities (INRbn)
World Equity AUM mix (%) -CY16 4,000
Flow led AUM - Equities (INRbn)
60%
46% 50% 3,000
50% 43% 328
36% 36%
40% 32%
29% 2,000
30% 21% 246 958
29% 822 2,608
20% 25% 1,000
1,318 1,070
809 938
10% 18% 508
- (314) (397)
0%
FY06
FY15
FY02
FY03
FY04
FY05
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY16
FY17
FY18
FY21F
FY25F
(1,000)
FY03-08 FY09-14 FY15 FY16 FY17 FY18
Fig. 33: SIP book on a structural uptrend – forms 9% of Fig. 34: We expect lump-sum flows to moderate cyclically,
equity AUMs with SIP flow momentum to continue
3,000 Net Equity Flows -Non SIP (INRbn)
85 Industry SIP flow (INRbn) Net Equity Flows -SIP (INRbn)
2,500
75
2,000
65
1,500
55
1,000
45
500
35
-
25
(500)
Aug-16
Sep-16
Aug-17
Sep-17
Jul-16
Jul-17
Mar-18
Mar-17
Dec-16
Jan-18
Jun-16
Jan-17
Jun-17
Jun-18
Apr-16
Oct-16
Nov-16
Apr-17
Oct-17
Nov-17
Dec-17
Apr-18
May-16
Feb-17
May-17
Feb-18
May-18
FY13
FY14
FY11
FY12
FY15
FY16
FY17
FY18
FY21F
FY23F
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Nomura | India financials 3 August 2018
Fig. 35: Overall macro construct implies 20% AUM CAGR growth opportunity over FY18-25F
2002 2008 2010 2014 2018 2021 2025 2030 2035 CAGR FY18-25F
Nominal GDP 24,038 48,657 63,187 113,451 167,731 233,736 347,065 510,934 666,616 11%
Real grow th (%) 9.96% 11.49% 9.60% 7.01% 4.44%
Household savings 5,453 11,183 16,308 22,853 27,099 37,061 53,643 76,416 96,367 10%
Savings (% of GDP) 22.7% 23.0% 25.8% 20.1% 16.2% 15.9% 15.5% 15.0% 14.5% -0.7%
994 1,000
Physical savings 2,978 5,381 8,560 14,532 13,549 17,419 23,066 30,566 38,547 8%
Financial savings 2,475 5,802 7,748 8,321 13,549 19,643 30,576 45,849 57,820 12%
Financial savings (% of savings) 45.4% 51.9% 47.5% 36.4% 50.0% 53.0% 57.0% 60.0% 60.0% 7.0%
Mutual Fund AUM 1,006 5,052 6,145 8,252 21,360 38,365 76,691 154,194 250,527 20%
% of GDP 4.2% 10.4% 9.7% 7.3% 12.7% 16.4% 22.1% 30.2% 37.6%
Equity AUM 326 1,890 2,156 2,085 9,219 17,710 38,345 77,097 125,263 23%
Equity AUM mix% 32.4% 37.4% 35.1% 25.3% 43.2% 46.2% 50.0% 50.0% 50.0% 6.8%
Grow th y/y 77.9% 10.1% 46.7% 23.4% 20.0% 13.0% 9.0%
Flow led AUM - equities (59) 527 15 (113) 2,608 1,755 2,512 3,014 4,208 -1%
Pricing Led AUM increase - equities 385 36 930 305 328 1,603 3,882 5,856 6,135 42%
Gross flow s (non SIP) % of Equity AUM 103.8% 57.3% 20.7% 72.0% 40.0%
Redem tions (% of Equiy AUMs) 64.1% 56.1% 32.1% 41.2% 34.0%
Source: World Bank, RBI, AMFI, Nomura estimates
Fig. 36: Detailed macro projection – we still build in conservative penetration levels vs other emerging countries
Our projections
INRbn FY14 FY18 FY20 FY25 FY30 FY35
Indian AUMs 8,252 21,360 31,778 76,691 154,194 250,527
CAGR % 37% 22% 19% 15% 10%
Equity AUM to GDP (%) 1.8% 5.5% 6.8% 11.0% 15.1% 18.8%
Equity AUM to Mcap (%) 2.8% 6.5% 7.9% 11.5% 14.3% 17.4%
Source: Nomura estimates
17
Nomura | India financials 3 August 2018
18
Nomura | India financials 3 August 2018
Fig. 38: Management fee/AUM trend for top-5 Fig. 39: Equity mix
Management fee/AUM - Top-5 Equity Mix - Top 5
45.0% 41.1%
0.68% 40.0%
0.65%
0.66% 35.0% 32.8% 32.1%
30.7%
0.64% 0.62% 30.0%
0.62% 0.61% 0.61%
25.0% 23.0%
0.60%
20.0%
0.58%
0.56% 15.0%
0.54% 10.0%
0.52% 5.0%
0.50% 0.0%
FY14 FY15 FY16 FY17 FY14 FY15 FY16 FY17 FY18
Source: Company data, Nomura research Source: Company data, Nomura research
19
Nomura | India financials 3 August 2018
Operating leverage will offset the negative impacts but profitability may not
materially improve
• While we estimate 12bps of negative impact for the industry TERs, we also expect
equity mix to improve by 8-10% over the next 3-5 years and, with equity mix improving,
we expect a positive impact on revenue with management fee/AUM improving by 7bps
(10% increase led by equity mix improvement)
• Also, we expect new flows to normalise, especially on the lump-sum equity net flow
side, which should lead to some normalisation in brokerage cost to AUM which have
increased by 5-10bps over the past 3 years. We expect brokerage to AUM declining
again to 15-16bps vs +20bps – an improvement of 5bps.
• With AUM forecast to see a +20% CAGR over the next 3 years, we expect opex to still
continue to grow at a nominal growth rate and, hence, opex to AUM ex of brokerage
cost will decline by 2bps over the next 2-3 years, on our estimates.
• With these, we think the positives will net off the negatives on profitability, hence we
expect PAT/AUM to be maintained at current levels.
• Having said that, we think the operating leverage in the business will be eaten away by
the regulator reducing TERs and, hence, PAT growth for the industry may trend in line
with AUM growth with some lead lag on TER cuts and normalisation/operating leverage
netting off the impacts.
• While the regulator cutting TERs and operating leverage not kicking in is not good for
the sector, we think this will make the industry cost-effective and offer a much better
product proposition over time which will be able to compete with the best of the
financial products available and, hence, the growth opportunity can be larger than what
we are expecting currently.
• Even with our expectations of no material operating leverage, we think AUM growth of
20-25% CAGR over FY18-20 will lead to +20% PAT CAGR for the AMCs and, with no
capital consumption, this translates into significant payout ability.
Positive impact Equity Mix change Net yield difference Net impact
Equity mix change 10% 0.53% 0.053%
(1) Negative impact Increase in trail Gross yields Current Maturity Net impact
Higher trail coms 10% 1.29% 50% -0.064%
(2) Negative impact Gross TER reduction Pass on to Distributors Net impact
TER changes -0.15% -0.10% -0.050%
20
Nomura | India financials 3 August 2018
21
Nomura | India financials 3 August 2018
Total Population 1,198.4 1,214.6 1,231.0 1,247.4 1,263.6 1,279.5 1,295.3 1,311.1 1,326.8 1,342.5
No of households 249.7 253.0 256.5 259.9 263.2 266.6 269.9 273.1 276.4 279.7
MF household penetration - India 7.8% 7.8% 7.6% 7.4% 6.7% 6.1% 6.4% 7.2% 8.3% 10.6%
MF household penetration - USA 45.3% 45.3% 44.1% 44.4% 46.3% 43.3% 43.0% 43.0% 43.6% 44.5%
No of MF investors (as % of
population) 2.0% 2.0% 1.9% 1.8% 1.7% 1.5% 1.6% 1.8% 2.1% 2.6%
Source: ICI Factbook, Nomura estimates
Fig. 44: India household penetration way lower to worry for passive funds
45%
45.3% 45.3% 46.3%
44.1% 44.4% 43.6% 44.5%
40% 43.3% 43.0% 43.0%
35%
30%
25%
20%
15%
10.6%
7.8% 7.8% 7.6% 7.4% 7.2% 8.3%
10% 6.7% 6.1% 6.4%
5%
0%
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
22
Nomura | India financials 3 August 2018
Fig. 45: MF penetration levels still low Fig. 46: Equity AUM to market cap is very low compared with
emerging economies
180% AUM to GDP ratio - CY17 60% 51% Equity AUM as a % of Market cap
155.4%
160% 50% 42%
140% 34%
114.2% 40%
120% 27% 26% 26% 26%
100% 30%
78.2% 73.0%
80% 62.7% 60.2% 20%
60% 9% 6%
36.1%
29.5%
10% 4% 4%
40%
13.8% 11.8% 0%
20%
USA
India
Japan
UK
Korea
China
Germany
Brazil
South Africa
Canada
France
0%
Japan
India
US
UK
Korea
Germany
Brazil
China
Australia
Canada
Source: ICI Factbook, Nomura research Source: ICI Factbook, Nomura research
Fig. 48: Our projections implies India will be lower than current world averages even in FY35F
Our projections
INRbn FY14 FY18 FY20 FY25 FY30 FY35
Indian AUMs 8,252 21,360 31,778 76,691 154,194 250,527
CAGR % 37% 22% 19% 15% 10%
Equity AUM to GDP (%) 1.8% 5.5% 6.8% 11.0% 15.1% 18.8%
Equity AUM to Mcap (%) 2.8% 6.5% 7.9% 11.5% 14.3% 17.4%
Source: Nomura estimates
23
Nomura | India financials 3 August 2018
Equity ETFs on the rise but not replacing active flows as yet
• Actively managed funds still remain the preferred way for investing in mutual funds,
while equity ETFs (exchange-traded funds – passive funds) account for 7% of equity
AUM as on FY18. Passive funds like ETFs have definitely gained traction, with a 60%
CAGR over the past five years, with mix increasing from <1% of equity AUMs to +7%
now.
• The Employees' Provident Fund Organisation (EPFO) was allowed to invest a portion
of its net inflows in equity ETFs, wherein it started with allocating 5% of its incremental
inflows in FY16, which increased to 10% of incremental inflows in FY17, and further
increased to 15% of incremental flows into equity in FY18. This has led to a sharp
surge in equity ETFs in the past three years.
• The government is further thinking of raising the limit to 25% of the incremental flows
which will be a massive boost to the passive flows.
• Having said that, net inflows into equity ETFs were just 8% of total net inflows into
equities in FY18 and accounted for 11% of the total net inflows into equity over the past
3 years cumulatively.
• Ex of EPFO, flows into ETFs are limited and, once the limit increase is halted, the flows
of EPFO into ETFs will also likely grow in line with nominal salary increases.
8.0% 7.3%
ETF AUM as % of Total Equity AUM
7.0% 6.6%
6.0%
5.0%
4.0% 3.6%
3.0%
2.1% 2.1%
2.0%
1.2%
0.8% 0.8%
1.0% 0.5% 0.4%
0.0%
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: SEBI, AMFI
Fig. 50: EPFO flows inched up due to increase in investable Fig. 51: But flow still is just 8% of total equity net inflows
limits for EPFO
ETF Net Flows (INRbn) ETF flows as % of Total Equity Net Flows
300 30%
241 240 18%
250 20%
9% 8%
200 10% 3%
1%
150 0%
87
100 -10%
50 29 23 -20%
0 -30%
(2)
-50 -40% -35%
FY13 FY14 FY15 FY16 FY17 FY18 FY13 FY14 FY15 FY16 FY17 FY18
24
Nomura | India financials 3 August 2018
Fig. 52: Passive flows picked up after household penetration flattened at higher levels
50% 30%
45%
25%
40%
35%
20%
30%
25% 15%
20%
10%
15%
10%
Household penetration - USA (LHS) 5%
5%
Passive flows (% of total equity AUM) - USA
0% 0%
FY91 FY96 FY01 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Fig. 53: Passive AUM now forms 25% of total equity AUMs
100% 30%
95% 25%
90% 20%
85% 15%
80% 10%
75% 5%
70% 0%
1998
2017
1993
1994
1995
1996
1997
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
25
Nomura | India financials 3 August 2018
Fig. 54: Management fees have compressed in the past few Fig. 55: …despite a sharp improvement in equity mix
years…
26
Nomura | India financials 3 August 2018
Fig. 56: Management revenue to AUM trend – top 5 players Fig. 57: Ex top 10 AMCs profitability is very low
Management fee/AUM - Top-5 Ex Top 10 PAT share Ex Top 10 Market share
0.70% 0.65%
0.61% 0.62% 0.61% 26% 25% 23%
30% 22% 19%
0.60% 0.54% 20%
7%
0.50% 10% 2%
0.40% 0%
-10%
0.30% -6%
-20%
0.20% -30% -19%
0.10% -40%
-37%
-50%
0.00%
FY13 FY14 FY15 FY16 FY17
FY13 FY14 FY15 FY16 FY17
Source: Company data, Nomura research Source: SEBI, Nomura research
27
Nomura | India financials 3 August 2018
Societe Generale
Asset Management SBI MF 37% 2004 56.00 1.61 4.35 7.77 Stake
Robeco Canara MF 49% 2007 22.00 1.15 2.35 10.67 Stake
Pioneer Baroda MF 51% 2007 n.a. n.a. n.a. 10.00 Stake
IDFC Standard Chartered 100% 2008 145.79 8.31 8.31 5.70 Stake
Religare Lotus AMC 100% 2008 54.58 0.5-1.5 0.5-1.5 n.a. Stake
L&T Finance DBS Chola MF 100% 2009 30.00 0.45 0.45 1.50 Stake
Nomura LIC MF 35% 2009 324.10 2.80 8.00 2.50 Stake
T Rowe Price UTI AMC 26% 2010 694.44 6.50 25.00 3.60 Stake
Goldman Sachs Benchmark 100% 2011 31.83 1.31 1.31 4.10 Stake
BOI AXA MF 51% 2011 n.a. n.a. n.a. n.a. Stake
Amundi SA SBI MF 37% 2011 416.72 n.a. n.a. n.a. Stake
Nippon Life Reliance 26% 2012 842.99 14.50 56.00 6.64 Stake
Schroders Axis AMC 25% 2012 n.a. n.a. n.a. n.a. Stake
L&T Finance Fidelity India 100% 2012 88.81 5.50 5.50 6.19 Stake
Invesco Religare 49% 2012 146.00 4.65 9.49 6.50 Stake
HDFC MF Morgan Stanley 100% 2013 32.90 1.5-1.7 1.5-1.7 4.5-5 Scheme
SBI MF Daiwa MF 100% 2013 2.66 0.03-0.04 0.03-0.04 1 - 1.5 Scheme
Nippon Life Reliance 9% 2014 1,288.88 6.57 73.00 5.66 Stake
Kotak AMC PineBridge 100% 2014 6.60 n.a. n.a. n.a. Scheme
Birla Sunlife ING MF 100% 2014 11.00 n.a. n.a. 1.50 Scheme
Dewan Housing Pramerica 50% 2014 20.60 0.24 0.49 2.42 Stake
Pramerica Deutsche 100% 2015 224.27 4.00 4.00 1.80 Stake
Reliance Goldman Sachs 100% 2015 71.32 2.43 2.43 3.41 Scheme
Nippon Life Reliance 14% 2015 1,510.06 11.96 85.42 5.66 Stake
Union Bank KBC AMC 49% 2015 26.72 n.a. n.a. n.a. Stake
Invesco Religare 51% 2015 215.93 7 to 10 n.a. n.a. Stake
Edelweiss JP Morgan AMC India 100% 2016 75.01 1.12-1.50 1.12-1.50 1.5 – 2 Scheme
LIC Nomura 35% 2016 111.57 0.27 1.42 1.27 Stake
Essel Finance Peerless MF 100% 2016 9.70 n.a. n.a. n.a. Stake
Source: SEBI, Nomura research.
28
Nomura | India financials 3 August 2018
29
Nomura | India financials 3 August 2018
Retail Bank
HDFC Bank 26.7 21.5 17.7% 17.9% 17.7%
Indusind Bank 26.5 20.8 18.1% 19.2% 27.2%
Kotak Bank 32.0 25.3 14.1% 15.3% 24.4%
Average 28.4 22.5 16.6% 17.5% 23.1% High Low Moderate Moderate
Exchanges/Depositories
BSE 17.6 15.6 7.8% 8.6%
CDSL 24.9 19.5 18.9% 19.9% 17.8%
Average 21.3 17.6 13.4% 14.2% 17.8% Moderate High High High
Consumer
Hindustan Unilever 60.2 51.2 83.1% 90.1% 19.1%
Marico 46.8 39.6 35.8% 37.7% 18.6%
Godrej Consumer Products 51.2 44.3 25.5% 25.8% 11.8%
Dabur India 47.6 41.4 26.7% 27.7% 16.0%
Asian Paints 55.8 47.6 26.3% 27.2% 18.4%
Average 52.3 44.8 39.5% 41.7% 16.8% High High High Low
AMCs
Reliance AMC 28.1 24.5 24.9% 26.7% 14.7% High High High Moderate
Source: Bloomberg, Nomura estimates
Company Name Ticker Rating TP (USD) FY19F FY20F EPS AUM FY19F FY20F FY19F FY20F FY19F FY20F
India
Reliance Nippon RNAM IN BUY 315 2,269 28.1 24.5 15% 20% 24.9% 26.7% 0.1% 0.1% 0.20% 0.19%
US
Blackrock BLK US NR NR 76,590 17.2 15.6 14% 8% 13.8 14.0 0.0% 0.0% 0.00% 0.00%
BNY Mellon BK US NR NR 52,627 12.6 11.7 11% 2% 11.1 11.2 2.8% 2.7% 0.23% 0.23%
State Street STT US NR NR 32,945 11.4 10.6 13% 3% 14.2 14.3 1.2% 1.1% 0.10% 0.11%
Franklin Templeton BEN US NR NR 16,766 11.1 10.2 1% -1% 10.2 15.6 2.3% 2.3% 0.19% 0.22%
T Rowe Price TROW US NR NR 28,560 16.0 15.0 16% 8% 29.5 28.1 2.6% 2.4% 0.17% 0.16%
Invesco Ltd IVZ US NR NR 10,255 9.3 8.7 4% 5% 12.6 12.6 0.0% 1.0% 0.00% 0.11%
Average 12.9 12.0 10% 4% 15.2 16.0 1.5% 1.6% 0.11% 0.14%
EMEA
Amundi AMUN FP NR NR 14,415 13.1 12.2 4% 4% 11.3 11.9 0.8% 0.8% 0.05% 0.06%
Schroders AMC SDR LN NR NR 10,809 13.7 13.1 4% 7% 17.2 16.7 1.8% 1.7% 0.10% 0.10%
UBS UBS US NR NR 62,176 0.1 0.1 3% 9.0 10.4 1.9% 1.8% 0.16% 0.18%
Investec INVP LN NR NR 6,908 9.5 8.5 9% 7% 12.3 12.7 4.5% 4.0% 0.34% 0.34%
Ashmore Group ASHM LN NR NR 3,328 16.7 14.8 5% 19% 20.9 22.2 3.5% 2.9% 0.16% 0.15%
Jupiter Fund JUP LN NR NR 2,497 12.5 12.2 3% 6% 23.7 23.6 3.8% 3.4% 0.23% 0.22%
Average 11.0 10.2 5% 8% 15.7 16.3 2.7% 2.4% 0.17% 0.17%
Australia
Magelian MFG AU NR NR 3,080 16.9 14.7 10% 48.3 50.9
Platinum PTM AU NR NR 2,333 17.0 17.0 -36% 9% 53.7 51.9 11.7% 11.1% 0.93% 0.88%
Perpetual PPT AU NR NR 1,468 14.2 14.2 35% 3% 22.0 21.1 6.3% 6.1% 0.61% 0.58%
Average 16.0 15.3 3% 6% 41.3 41.3 9.0% 8.6% 0.77% 0.73%
Asia
China Cinda 1359 HK BUY 3.84 10,356 3.2 2.7 17.6 20.5 - - - -
China Huarong 2799 HK REDUCE 3.13 9,607 3.2 3.0 10% 16.9 15.7 - - - -
Average 3.2 2.8 10% 14.6 14.6 - - - -
Global average 14.2 13.0 9% 9% 17.4 17.7 3.3% 3.2% 0.31% 0.31%
Source: Bloomberg consensus forecasts for Not Rated (NR) stocks, Nomura estimates. Note: share prices are as of 2 August 2018 close.
30
Reliance Nippon Life Asset
Management RELL.NS RNAM IN
EQUITY: FINANCIALS
Key company data: See next page for company data and detailed price/index chart.
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Nomura | Reliance Nippon Life Asset Management 3 August 2018
32
Nomura | Reliance Nippon Life Asset Management 3 August 2018
33
Nomura | Reliance Nippon Life Asset Management 3 August 2018
Fig. 61: RNAM is gradually losing market share… Fig. 62: …led by HNI market share loss
20.0% RNAM AUM Market share (%) 14% RNAM Equity Market share
13%
13.4%
15.0% 17%
16% 12%
12.5%
15% 14% 12.2%
13% 11%
11.4%
10.0% 12% 12% 11% 12% 12% 12% 10%
11% 10%
9% 9.6%
5.0% 9.3% 9.4% 9.1% 9.1% 9.2% 9.1% 9.2%
8%
7%
0.0%
6%
FY11
FY17
FY07
FY08
FY09
FY10
FY12
FY13
FY14
FY15
FY16
FY18
1QFY19
Jan-18
Jun-18
FY18
Mar-18
FY13
FY14
FY15
FY16
FY17
Apr-18
Feb-18
May-18
Source: AMFI, Nomura research Source: AMFI, Nomura research
Fig. 63: Folio market share still better than overall market Fig. 64: SIP market share higher than equity market share
share with focus on retail segment
Folio Market share - RNAM 12.0% SIP Market share - RNAM
13.5%
11.8%
13.0% 13.3% 11.5%
11.0% 10.8%
12.5%
11.1% 10.5%
12.0% 12.4% 12.4% 10.5% 10.7%
10.6% 10.6%
11.5% 10.0%
10.1% 10.2%
10.5% 9.0%
Jul-16
Dec-16
Jun-17
Dec-17
Jun-16
Aug-16
Sep-16
Oct-16
Nov-16
Jan-17
Sep-17
Apr-16
Feb-17
Mar-17
Apr-17
Mar-18
May-16
May-17
10.0%
FY15 FY16 FY17 FY18
Source: AMFI, Nomura research Source: AMFI, Nomura research
Fig. 65: Sourcing mix – IFAs contribute ~50% of the AUMs Fig. 66: IFA’s AUM has grown in line with overall AUM growth
at 22-24% CAGR over FY14-18 despite large flows sourced
by banks for the industry
200
33% 100
0
FY14 FY15 FY16 FY17 FY18
Source: Company data, Nomura research Source: Company data, Nomura research
34
Nomura | Reliance Nippon Life Asset Management 3 August 2018
Fig. 67: Retail mix has improved materially over the past few Fig. 68: RNAM has gained retail AUM market share from <9%
years in FY14 to ~14% now
Retail Mix (%) HNI Mix (%) 15.0% RNAM- Retail AUM Market Share (%)
35.0% 30.5%
30.0% 13.0% 13.8% 13.7%
25.7% 24.6%
29.7% 13.0%
25.0% 21.3%
11.0%
20.0% 11.2%
13.6% 19.3% 19.8%
15.0% 9.0%
17.1% 16.2%
10.0% 8.6%
7.0%
5.0%
0.0% 5.0%
FY14 FY15 FY16 FY17 FY18 FY14 FY15 FY16 FY17 FY18
Source: Company data, Nomura research Source: AMFI, company data, Nomura research
Fig. 69: RNAM has been consistently growing its retail AUMs Fig. 70: ...while it has significantly run-down its HNI AUMs,
faster than the industry… thus reducing the cyclicality risk
Retail AUM growth y-y - Industry HNI AUM growth y-y - Industry HNI AUM growth y-y - RNAM
100.0% 94.5% Retail AUM growth y-y - RNAM 36.1%
40.0% 33.2% 34.2%
90.0%
80.0% 30.0%
70.0% 18.4%
54.6%
20.0% 15.0%
60.0% 12.5%
50.2%
45.6% 6.8%
50.0% 40.0% 39.0% 10.0%
40.0%
30.0% 24.7% 0.0%
20.0% -10.0%
7.6%
10.0%
-12.7%
0.0% -20.0%
FY15 FY16 FY17 FY18 FY15 FY16 FY17 FY18
Source: AMFI, company data, Nomura research Source: AMFI, company data, Nomura research
35
Nomura | Reliance Nippon Life Asset Management 3 August 2018
Fig. 71: RNAM’s retail mix has improved materially vs Fig. 72: RNAM has a much lower share of HNI’s in its AUMs
industry levels since FY14 now
Retail Mix (%) - Industry Retail Mix (%) - RNAM HNI Mix (%) - Industry HNI Mix (%) - RNAM
35.0% 35.0%
30.5% 29.7%
30.0% 30.0% 27.8%
25.8% 26.0% 25.7% 26.1% 25.3%
24.6%
25.0% 23.6% 25.0%
21.3% 20.6%
20.3% 19.8%
19.3% 19.4%
20.0% 18.2% 20.0%
17.1%
16.2%
15.0% 13.6% 15.0%
10.0% 10.0%
FY14 FY15 FY16 FY17 FY18 FY14 FY15 FY16 FY17 FY18
Source: AMFI, company data, Nomura research Source: AMFI, company data, Nomura research
SIP share and retail share better than overall market share
• Improving retail market share is also visible from the traction in the systematic
investment plan (SIP) book. RNAM has been able to maintain its SIP market share at
+10% in FY18 and has seen a marginal improvement in market share in the past 12
months.
• Its SIP book in FY18 stood at INR7.5bn which implies +10% of opening equity AUMs
which will continue to support the equity mix improvement for RNAM, in our view.
• We think despite having a disadvantage in terms of distribution, RNAM has got its
strategy right to focus on the retail segment and source it through IFAs and this should
help build stickiness in its AUMs.
• Similar to the industry, we expect RNAM’s SIP book to continue to record a 10% CAGR
over the next three-five years, while we expect a cyclicality in non-SIP flows.
Fig. 73: SIP book growing in line with industry trends Fig. 74: SIP market share improving marginally
SIP monthly flow (INRbn) - RNAM 12.0% SIP Market share - RNAM
8.00 7.50
7.00 11.8%
11.5%
6.00
11.0% 10.8%
5.00 11.1% 10.5%
4.00 10.5% 10.7%
10.6% 10.6%
3.00
10.0%
2.00 10.1% 10.2%
1.00 9.5%
- 9.0%
Sep-15
Sep-16
Sep-17
Jul-15
Jul-16
Mar-16
Mar-17
Mar-18
Nov-15
Jan-16
Nov-16
Jan-17
May-17
May-15
May-16
Jul-16
Dec-16
Jun-17
Dec-17
Jun-16
Aug-16
Sep-16
Oct-16
Nov-16
Jan-17
Apr-16
Feb-17
Mar-17
Apr-17
Sep-17
Mar-18
May-16
May-17
Source: Company data, Nomura research Source: AMFI, company data, Nomura research
Fig. 75: SIP book forms 10% of opening equity AUM – higher than industry average
SIP book (annualized) as % of Equity AUM- Industry
10.5%
SIP book (annualized) as % of Equity AUM- RNAM 10.32%
10.0%
9.5% 9.28%
8.96% 9.06%
9.0% 8.69% 8.78%
8.5%
8.0%
7.5%
FY16 FY17 FY18
Source: AMFI, company data, Nomura research
36
Nomura | Reliance Nippon Life Asset Management 3 August 2018
Equity mix lower due to the loss of HNI share, but stickiness
should be better
• RNAM has lost equity market share by 400bps over FY13-17 with the company
defocusing on the HNI segment where equity flows were stronger in general. However,
RNAM has been able to arrest further market share loss with market share gains in the
retail equity segment.
• We think lump sum flows will get impacted during weak market environment where
flows dry out and hence non-bank AMCs get impacted more in general as the parent
bank is always incentivized to create value within the organization and hence stop
selling other AMCs’ products aggressively.
• With this, we expect non-bank AMCs to lose higher market share in general as
cyclicality inflows may play out in the near-term given the exceptionally strong inflows in
the past four years.
• But, we still expect RNAM’s cyclicality risks to be lower given the lower share of HNIs.
We expect the equity mix for RNAM to improve by 35bps annually over FY18-25F vs.
100bps for the industry and expect a marginal market share loss in the equity segment
– 20bps annually (in-line with top-5 players).
Fig. 76: RNAM’s equity market share vs. top-5 average Fig. 77: RNAM’s equity mix expectations vs. top-5
RNAM equity market share Top-5 avg equity market share Equity Mix (%) - RNAM Equity Mix (%) - Top 5
50% 46%
12% 11.5% 11.2% 11.3% 45% 45%
11.0% 43%
45% 42%
11% 10.2%
10% 9.3% 9.0% 40%
8.9% 8.6% 34% 34%
9% 35% 32% 39% 39% 40%
7.8% 37% 38%
8% 35%
30% 33% 33%
7% 31%
30%
6% 25%
5% 20%
FY18
FY19F
FY20F
FY21F
FY25F
FY16
FY13
FY14
FY15
FY17
FY18
FY19F
FY20F
FY21F
FY25F
Source: AMFI, company data, Nomura estimates Source: AMFI, company data, Nomura estimates
Fig. 78: Equity market share expectations – we expect the top-5 to lose equity market share as smaller funds have an ability to
outperform better
Market share - Equity FY13 FY14 FY15 FY16 FY17 FY18 FY19F FY20F FY21F FY22F FY23F FY24F FY25F
RNAM 13.4% 12.5% 12.2% 11.4% 9.6% 9.3% 9.0% 8.9% 8.6% 8.4% 8.2% 8.0% 7.8%
ICICI 8.5% 10.7% 13.4% 14.2% 14.9% 15.1% 15.0% 15.3% 15.0% 14.8% 14.6% 14.3% 14.2%
SBI 7.5% 7.2% 6.0% 6.8% 7.9% 7.9% 8.1% 9.0% 8.7% 8.4% 8.1% 7.8% 7.5%
Birla 5.3% 5.9% 7.1% 7.6% 8.4% 9.2% 9.0% 9.0% 8.8% 8.6% 8.4% 8.2% 8.0%
Top-5 market share 55.4% 55.7% 57.6% 55.2% 56.5% 57.4% 56.1% 56.5% 55.2% 54.0% 52.8% 51.7% 50.8%
Source: Company data, Nomura estimates
37
Nomura | Reliance Nippon Life Asset Management 3 August 2018
Fig. 79: Moderation in revenue growth vs. AUM growth is Fig. 80: Management fees to AUM has compressed despite
reflective of the increase in payouts the improvement in the equity mix
Revenue Growth CAGR AUM Growth CAGR Management fee to AUM (%)
30.0% 0.9%
0.84%
25.0% 23.8% 24.4% 24.4% 0.9%
19.9% 0.8%
20.0% 0.75% 0.73%
17.2% 0.8% 0.72% 0.71%
15.0% 0.69%
15.0% 0.7% 0.67% 0.67%
0.7%
10.0%
0.6%
5.0% 0.6%
0.0% 0.5%
FY14-18 FY16-18 FY18-21F FY14 FY15 FY16 FY17 FY18 FY19F FY20F FY21F
Source: Company data, Nomura estimates Source: Company data, Nomura estimates
Fig. 81: Moderation in revenue yield is due to the Fig. 82: We expect revenue CAGR of 17% vs. a 23% equity
compression in equity yields AUM CAGR and overall AUM CAGR of 20%
Equity fee to AUM (%)
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Nomura | Reliance Nippon Life Asset Management 3 August 2018
Fig. 83: Impending negative impact on revenue for the sector – we think the impact can be absorbed by operating leverage
kicking in
Industry AUM Current AUM
Schemes Expense ratios - Regular Expense ratio - Direct (INRmn) Mix
Income 1.00% 0.50% 8,289,410 40.6%
Equity 2.10% 1.10% 5,877,715 28.8%
Liquid 0.25% 0.10% 3,554,080 17.4%
Balanced 2.10% 1.10% 1,348,680 6.6%
ELSS 2.30% 1.40% 714,105 3.5%
ETF 0.50% 0.00% 603,140 3.0%
FOF 0.50% 0.05% 15,880 0.1%
Grand Total 1.29% 0.66% 20,403,010
Equity + Balanced yield 2.10% 1.10%
Other yields 0.76% 0.36%
Equity + Balanced 7,940,500 38.9%
Positive impact Equity Mix change Net yield difference Net impact
Equity mix change 10% 0.53% 0.053%
(1) Negative impact Increase in trail Gross yields Current Maturity Net impact
Higher trail coms 10% 1.29% 50% -0.064%
(2) Negative impact Gross TER reduction Pass on to Distributors Net impact
TER changes -0.15% -0.10% -0.050%
• Management fees form a large part of the total revenue for RNAMC, with management
fees contributing 85% of total FY18 revenue. Advisory fees form a smaller portion of the
total revenue at <3% of total FY18 revenue.
• However, given that RNAM is focused on managing assets beyond mutual funds, the
company is present in portfolio management services, alternate investment funds,
pension funds, offshore funds and advisory mandates.
• We expect advisory fees to record +35% CAGR, while the contribution will still remain
low at ~3% of total revenue by FY21F.
• In FY18, RNAM booked a large other income linked to its investment book due to the
recently-raised capital through its IPO as well as booking of income which was
otherwise sitting as mark to market (MTM) gains. We think this may not be sustainable
as the IPO-led funds get expensed as well as booking gains can be lumpy in few years.
We expect investment gains to come down from INR2.3bn in FY18 to less than INR2bn
in FY21F.
Other income 1,259 1,029 1,079 1,137 1,284 2,290 2,269 1,775 1,914 22.1% 41.9% -5.8%
Total revenue 7,346 7,788 9,551 13,138 14,359 18,150 20,226 22,982 27,426 23.6% 17.5% 14.8%
Source: Company data, Nomura estimates
39
Nomura | Reliance Nippon Life Asset Management 3 August 2018
Fig. 85: Brokerage payouts to normalise with a normalisation Fig. 86: Brokerage to AUM to compress marginally over the
in new flows next two-three years with the normalisation of flows
7 Brokerage exp (INRbn)
6.13 Brokerage/AUM
6 0.25% 0.23%
5.10
5 4.62
0.20% 0.18% 0.18%
3.96 0.17% 0.17%
4 0.15%
3.12
2.59 0.15%
3
2 0.10% 0.09% 0.08%
0.75 0.93
1
0.05%
-
FY14
FY15
FY16
FY17
FY18
FY20F
FY19F
FY21F
0.00%
FY14 FY15 FY16 FY17 FY18 FY19F FY20F FY21F
Source: Company data, Nomura estimates
Source: Company data, Nomura estimates
Fig. 87: Employee expense growth to remain steady Fig. 88: Other operating expense growth to moderate with
some moderation in AUM growth
Employee exp (INRbn) 3.23 8.0 Other operating expenses
3.5 7.14
(INRbn)
2.89 7.0 6.17
3.0
2.58
2.30 6.0 5.34
2.5 4.63
1.92 1.96 5.0
2.0 3.99
1.60 1.51 1.61 4.0
1.5 2.87
3.0 2.22 2.37
1.0 1.73
2.0
0.5 1.0
- -
FY19F
FY20F
FY21F
FY16
FY13
FY14
FY15
FY17
FY18
FY13
FY14
FY15
FY16
FY17
FY18
FY20F
FY19F
FY21F
Source: Company data, Nomura estimates Source: Company data, Nomura estimates
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Nomura | Reliance Nippon Life Asset Management 3 August 2018
Fig. 89: We expect opex growth to normalise with the normalisation in flow-related expenses
CAGR
INRm n FY13 FY14 FY15 FY16 FY17 FY18 FY19F FY20F FY21F FY14-18 FY16-18 FY18-21F
Opex 4,414 4,490 4,913 7,914 8,546 10,890 12,533 14,154 16,496 24.8% 17.3% 14.8%
Em ployee expense 1,601 1,512 1,613 1,923 1,957 2,300 2,576 2,885 3,231 11.1% 9.4% 12.0%
Adm in expense 1,305 1,668 1,810 2,159 2,559 3,130 3,693 4,358 5,143 17.0% 20.4% 18.0%
Legal and professional charges 243 333 300 324 424 518 611 721 851 11.7% 26.5% 18.0%
Rent 196 176 102 159 207 253 298 352 416 9.5% 26.2% 18.0%
Outsourced services 291 558 649 802 875 1,070 1,263 1,490 1,759 17.7% 15.5% 18.0%
Marketing expense 1,390 1,105 1,501 3,752 3,892 5,120 5,890 6,500 7,669 46.7% 16.8% 14.4%
Brokerage, incentives and others 1,083 754 927 3,120 2,594 3,961 4,615 5,097 6,126 51.4% 12.7% 15.6%
Marketing expenses 219 254 391 382 696 557 612 674 741 21.7% 20.8% 10.0%
Advertisement 88 98 183 250 602 602 663 729 802 57.4% 55.2% 10.0%
Depreciation 85 143 69 43 179 340 374 411 453 24.1% 180.9% 10.0%
Source: Company data, Nomura estimates
Fig. 90: Yields to get impacted by recent TER cuts Fig. 91: Operating leverage to kick in by FY20F
Management fee to AUM (%) Opex to AUM (%)
0.9% 0.6% 0.57%
0.84%
0.9%
0.6%
0.8% 0.51% 0.51% 0.50%
0.75% 0.49%
0.73% 0.72%
0.5% 0.47%
0.8% 0.71% 0.46%
0.69% 0.44%
0.7% 0.67% 0.67% 0.5%
0.7%
0.4%
0.6%
0.4%
0.6%
0.5% 0.3%
FY14 FY15 FY16 FY17 FY18 FY19F FY20F FY21F FY14 FY15 FY16 FY17 FY18 FY19F FY20F FY21F
Source: Company data, Nomura estimates Source: Company data, Nomura estimates
Fig. 92: Core profitability to improve with operating leverage Fig. 93: PAT to AUM to remain stable at 20-22bps
kicking in
Core PBT/AUM PAT/AUM
0.35% 0.35%
0.29% 0.31% 0.32%
0.30% 0.29%
0.27% 0.30%
0.24% 0.24% 0.24%
0.25% 0.22% 0.25% 0.23% 0.22% 0.21% 0.22%
0.21% 0.20%
0.19%
0.20% 0.20%
0.15% 0.15%
0.10% 0.10%
0.05% 0.05%
0.00% 0.00%
FY14 FY15 FY16 FY17 FY18 FY19F FY20F FY21F FY14 FY15 FY16 FY17 FY18 FY19F FY20F FY21F
Source: Company data, Nomura estimates Source: Company data, Nomura estimates
41
Nomura | Reliance Nippon Life Asset Management 3 August 2018
Fig. 94: Core EBIT margin has been in the range of 35-50% Fig. 95: Core PBT/AUM in the range of 20-30bps
FY14
FY15
FY16
FY17
FY18
FY19F
FY20F
FY21F
Source: Company data, Nomura estimates Source: Company data, Nomura estimates
Fig. 96: ROEs have been improving despite new flow drags – we expect ROEs to
improve further to 35% by FY21F despite stable core PBT to AUM
35.0% ROE
30.5%
30.0%
26.7%
24.9%
25.0% 23.1% 22.8%
22.1% 21.3%
20.0% 17.4%
15.0%
10.0%
5.0%
0.0%
FY14 FY15 FY16 FY17 FY18 FY19F FY20F FY21F
42
Nomura | Reliance Nippon Life Asset Management 3 August 2018
100.0%
81.4%
80.0% 74.1% 75.0% 75.0% 75.0%
69.7% 70.6%
60.0%
43.7%
40.0%
20.0%
0.0%
FY13 FY14 FY15 FY16 FY17 FY18 FY19F FY20F FY21F
43
Nomura | Reliance Nippon Life Asset Management 3 August 2018
44
Nomura | Reliance Nippon Life Asset Management 3 August 2018
Fig. 98: Our TP of INR315/share implies 32x Sep-20F core PAT and 1x book value for its
investments
At current At PT
RNAM valuation (INRmn) FY19F FY20F FY21F price Sep-20
MF business
PBT ex other income 5,423 7,053 9,016 8,035 8,035
Adjusted core PAT for MF 3,633 4,726 6,041 5,383 5,383
Value of MF business @ 30x 109,908 142,951 182,739 134,247 171,458
Value per share 180 234 299 219 280
Value of investments
Investable networth 19,038 20,402 22,123 21,262 21,262
Value of investments @ 1x book 19,609 21,014 22,786 21,262 21,262
Value per share 32 34 37 35 35
Retail Bank
HDFC Bank 26.7 21.9 17.7% 17.9% 17.7%
Indusind Bank 25.8 20.3 18.1% 19.2% 27.2%
Kotak Bank 32.3 25.7 14.1% 15.3% 24.4%
Average 28.3 22.6 16.6% 17.5% 23.1% High Low Moderate Moderate
Exchanges/Depositories
BSE 17.5 15.5 7.8% 8.6%
CDSL 23.0 19.5 18.9% 19.9% 17.8%
Average 20.2 17.5 13.4% 14.2% 17.8% Moderate High High High
Consum er
Hindustan Unilever 57.8 49.1 83.1% 90.1% 19.1%
Marico 48.2 40.8 35.8% 37.7% 18.6%
Godrej Consumer Products 51.5 44.0 25.5% 25.8% 11.8%
Dabur India 43.7 37.8 26.7% 27.7% 16.0%
Asian Paints 57.3 48.6 26.3% 27.2% 18.4%
Average 51.7 44.1 39.5% 41.7% 16.8% High High High Low
AMCs
Reliance AMC 24.3 21.2 24.9% 26.7% 14.7% High High High Moderate
Source: Bloomberg, Nomura estimates
45
Nomura | Reliance Nippon Life Asset Management 3 August 2018
AMCs Mkt cap P/E 3Yr Expctd CAGR ROE Mkt Cap/AUM PAT/AUM
Company Name Ticker Rating TP (USD) FY19F FY20F EPS AUM FY19F FY20F FY19F FY20F FY19F FY20F
India
Reliance Nippon RNAM IN BUY 315 2,269 28.1 24.5 15% 20% 24.9% 26.7% 0.1% 0.1% 0.20% 0.19%
US
Blackrock BLK US NR NR 76,590 17.2 15.6 14% 8% 13.8 14.0 0.0% 0.0% 0.00% 0.00%
BNY Mellon BK US NR NR 52,627 12.6 11.7 11% 2% 11.1 11.2 2.8% 2.7% 0.23% 0.23%
State Street STT US NR NR 32,945 11.4 10.6 13% 3% 14.2 14.3 1.2% 1.1% 0.10% 0.11%
Franklin Templeton BEN US NR NR 16,766 11.1 10.2 1% -1% 10.2 15.6 2.3% 2.3% 0.19% 0.22%
T Rowe Price TROW US NR NR 28,560 16.0 15.0 16% 8% 29.5 28.1 2.6% 2.4% 0.17% 0.16%
Invesco Ltd IVZ US NR NR 10,255 9.3 8.7 4% 5% 12.6 12.6 0.0% 1.0% 0.00% 0.11%
Average 12.9 12.0 10% 4% 15.2 16.0 1.5% 1.6% 0.11% 0.14%
EMEA
Amundi AMUN FP NR NR 14,415 13.1 12.2 4% 4% 11.3 11.9 0.8% 0.8% 0.05% 0.06%
Schroders AMC SDR LN NR NR 10,809 13.7 13.1 4% 7% 17.2 16.7 1.8% 1.7% 0.10% 0.10%
UBS UBS US NR NR 62,176 0.1 0.1 3% 9.0 10.4 1.9% 1.8% 0.16% 0.18%
Investec INVP LN NR NR 6,908 9.5 8.5 9% 7% 12.3 12.7 4.5% 4.0% 0.34% 0.34%
Ashmore Group ASHM LN NR NR 3,328 16.7 14.8 5% 19% 20.9 22.2 3.5% 2.9% 0.16% 0.15%
Jupiter Fund JUP LN NR NR 2,497 12.5 12.2 3% 6% 23.7 23.6 3.8% 3.4% 0.23% 0.22%
Average 11.0 10.2 5% 8% 15.7 16.3 2.7% 2.4% 0.17% 0.17%
Australia
Magelian MFG AU NR NR 3,080 16.9 14.7 10% 48.3 50.9
Platinum PTM AU NR NR 2,333 17.0 17.0 -36% 9% 53.7 51.9 11.7% 11.1% 0.93% 0.88%
Perpetual PPT AU NR NR 1,468 14.2 14.2 35% 3% 22.0 21.1 6.3% 6.1% 0.61% 0.58%
Average 16.0 15.3 3% 6% 41.3 41.3 9.0% 8.6% 0.77% 0.73%
Asia
China Cinda 1359 HK BUY 3.84 10,356 3.2 2.7 17.6 20.5 - - - -
China Huarong 2799 HK REDUCE 3.13 9,607 3.2 3.0 10% 16.9 15.7 - - - -
Average 3.2 2.8 10% 14.6 14.6 - - - -
Global average 14.2 13.0 9% 9% 17.4 17.7 3.3% 3.2% 0.31% 0.31%
Source: Bloomberg, Nomura estimates. Bloomberg consensus for not-rated stocks. Note: Share prices are as of 2 August 2018 close.
46
Nomura | Reliance Nippon Life Asset Management 3 August 2018
Board of Directors
Name Designation Education Description
A board member of Reliance AIF Management Company Limited,
Reliance Asset Management (Mauritius) Limited and Reliance Asset
Executive Director and Management (Singapore) Pte Limited. Ex- chairman of the Association of
Sundeep Sikka CEO MBA (University of Pune) Mutual Funds in India (AMFI).
Non-Executive Bachelor of Laws (Kyoto Executive Officer, Head of Asia Pacific with the Nippon Life Insurance
Minoru Kimura Director University, Japan) Company..
Non-Executive Currently the General Manager overseeing Global business planning at
Akira Shibata Director Bachelor of Laws, MBA Nippon Life.
General Ved Ex-Chief of the Army. Board member of Hero Motocorp Limited and
Prakash Malik (retd.) Independent Director NDA, IMA HMC MM Auto Limited.
47
Nomura | Reliance Nippon Life Asset Management 3 August 2018
Key risks
• Litigations against the company: There are few outstanding proceedings against
RNAMC and its promoters which may impact the financials of the company. RNAMC
has tax litigation outstanding of INR925bn and other civil litigation of INR44mn currently
and Reliance Capital (its promoter) also has a tax litigation of INR455mn.
• Revenue impacted by market volatility: Reliance AMC earns management fee on
the value of AUMs, where the equity is a substantial portion of total AUMs. Any sharp
decline in equity markets can lead to a decline in AUMs and also impact new flows into
equity which can lead to a material impact on revenue. Also, its debt portion of AUMs is
linked to the interest rate cycle and also subject to default risk.
• Underperformance of schemes: Inflows into schemes are dependent of the
performance of the schemes and hence at a risk if a scheme underperforms its
benchmark. This may lead to relatively lower growth in AUM and management fees vs.
peers as well as lead to higher redemptions and lower new flows. Continued
underperformance of various schemes may also impact the brand of the company.
• Distribution: Since Reliance AMC is not backed by a parent bank, it is relatively more
dependent on its third-party distributors who are not exclusive distributors for Reliance
AMC and may also be offering similar products of competitors. These third-party
distributors may choose to promote competitors’ products depending on their
compensation arrangements.
• Reduction in financial savings: The flow into mutual funds is a result of the
improvement in financial savings and any shift to physical savings may materially
impact new fund flows into mutual funds.
• Dependence on investment professionals: Reliance AMC is dependent on its key
investment professionals for driving the investment strategy and returns. The key risk is
of losing these key personnel which may impact the fund performance and flows.
• Increased competition: Increased flows seen in the past few years may lead to new
participants entering the market, leading to higher competition. Also, this can impact
profitability due to a reduction in the management fees and increase in commissions
paid out. Also, international funds can become more competitive if the flows and
profitability of the industry remain robust.
• Regulatory risks: Regulations so far have been favourable for the industry and have
been investor-friendly, leading to increasing preference towards investment in mutual
funds. But, with increasing profitability, the regulator has been tightening the
management fees charges and may also restrict the expenses (especially
commissions), which may have an adverse impact on the profitability.
48
Nomura | Reliance Nippon Life Asset Management 3 August 2018
Financials
Fig. 102: RNAM – P&L: We expect 22% core PBT CAGR over FY18-21F
CAGR
RNAMC P&L (INRm n) FY13 FY14 FY15 FY16 FY17 FY18 FY19F FY20F FY21F FY13-18 FY16-18 FY18-21F
Revenue 6,087 6,759 8,472 12,001 13,075 15,860 16,658 19,543 23,369 21.1% 15.0% 13.8%
Management fees 5,890 6,555 8,202 11,581 12,676 15,343 17,245 20,248 24,215 21.1% 15.1% 16.4%
Advisory fees 198 201 267 418 398 517 (588) (705) (846) 21.2% 11.2% -217.8%
Share of profit in LLP - 3 3 2 1 - - - -
Other income 1,259 1,029 1,079 1,137 1,284 2,290 2,255 1,649 1,573 12.7% 41.9% -11.8%
Total revenue 7,346 7,788 9,551 13,138 14,359 18,150 18,913 21,192 24,943 19.8% 17.5% 11.2%
Opex 4,414 4,490 4,913 7,914 8,546 10,890 12,533 14,154 16,496 19.8% 17.3% 14.8%
Em ployee expense 1,601 1,512 1,613 1,923 1,957 2,300 2,576 2,885 3,231 7.5% 9.4% 12.0%
Adm in expense 1,305 1,668 1,810 2,159 2,559 3,130 3,693 4,358 5,143 19.1% 20.4% 18.0%
Legal/professional charges 243 333 300 324 424 518.12 611.38 721.43 851.28 16.3% 26.5% 18.0%
Rent 196 176 102 159 207 252.93 298.46 352.18 415.58 5.2% 26.2% 18.0%
Outsourced services 291 558 649 802 875 1,070.43 1,263.11 1,490.47 1,758.75 29.7% 15.5% 18.0%
Marketing expense 1,390 1,105 1,501 3,752 3,892 5,120 5,890 6,500 7,669 29.8% 16.8% 14.4%
Brokerage/commissions 1,083 754 927 3,120 2,594 3,961 4,615 5,097 6,126 29.6% 12.7% 15.6%
Marketing expenses 219 254 391 382 696 557 612 674 741 20.5% 20.8% 10.0%
Advertisement 88 98 183 250 602 602 663 729 802 46.8% 55.2% 10.0%
Depreciation 85 143 69 43 179 340 374 411 453 31.9% 180.9% 10.0%
Investment depreciation 33 61 (80) 38 (42) - - - -
EBIT 2,933 3,298 4,639 5,224 5,813 7,260 6,380 7,037 8,447 19.9% 17.9% 5.2%
Core EBIT 1,674 2,269 3,560 4,087 4,529 4,970 4,125 5,388 6,874 24.3% 10.3% 11.4%
Exceptional items - - 29 - -
PBT 2,933 3,298 4,609 5,224 5,813 7,260 6,380 7,037 8,447 19.9% 17.9% 5.2%
Tax 628 591 1,065 1,260 1,786 2,040 1,786 1,970 2,365 26.6% 27.3% 5.1%
PAT 2,304 2,707 3,545 3,964 4,028 5,220 4,593 5,067 6,082 17.8% 14.7% 5.2%
Minority interest 0.4 0.5 0.3 0.1 -
PAT after m inority interest 2,304 2,706 3,545 3,964 4,028 5,220 4,593 5,067 6,082 17.8% 14.7% 5.2%
PBT ex other incom e 1,674 2,269 3,531 4,087 4,529 4,970 4,125 5,388 6,874 24.3% 10.3% 11.4%
Dividend 1,613 1,613 3,410 1,440 2,477 3,147.8 2,945 3,248 3,899 14.3% 47.8% 7.4%
Dividend - preference shares 0.02 0.02 - 3.11 18.00
Dividend tax 262 274 630 294 508 535.1 501 552 663 15.4% 35.0% 7.4%
Total payout 1,874 1,887 4,040 1,737 3,003 3,683 3,445 3,800 4,561 14.5% 45.6% 7.4%
Dividend Payout 81.4% 69.7% 114.0% 43.7% 74.1% 70.6% 75.0% 75.0% 75.0%
Source: Company data, Nomura estimates
49
Nomura | Reliance Nippon Life Asset Management 3 August 2018
Fig. 103: RNAM – Dupont table: We expect core PBT to AUM to improve to 22bps by FY21F after dipping to 19bps in FY19F
ROA tree on core AUM FY13 FY14 FY15 FY16 FY17 FY18 FY19F FY20F FY21F
Revenue 0.77% 0.76% 0.87% 0.75% 0.74% 0.72% 0.70% 0.71%
Management fees 0.75% 0.73% 0.84% 0.72% 0.71% 0.69% 0.67% 0.67%
Advisory fees 0.02% 0.02% 0.03% 0.02% 0.02% 0.03% 0.03% 0.04%
Share of profit in limited liability partnership 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other income 0.12% 0.10% 0.08% 0.07% 0.11% 0.09% 0.06% 0.05%
Total revenue 0.89% 0.85% 0.95% 0.82% 0.84% 0.81% 0.76% 0.76%
Opex 0.51% 0.44% 0.57% 0.49% 0.51% 0.50% 0.47% 0.46%
Em ployee expense 0.17% 0.14% 0.14% 0.11% 0.11% 0.10% 0.10% 0.09%
Adm in expense 0.19% 0.16% 0.16% 0.15% 0.15% 0.15% 0.14% 0.14%
Legal and professional charges 0.04% 0.03% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02%
Rent 0.02% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01%
Outsourced services 0.06% 0.06% 0.06% 0.05% 0.05% 0.05% 0.05% 0.05%
Marketing expense 0.13% 0.13% 0.27% 0.22% 0.24% 0.24% 0.22% 0.21%
Brokerage, incentives and others 0.09% 0.08% 0.23% 0.15% 0.18% 0.18% 0.17% 0.17%
Marketing expenses 0.03% 0.03% 0.03% 0.04% 0.03% 0.02% 0.02% 0.02%
Advertisement 0.01% 0.02% 0.02% 0.03% 0.03% 0.03% 0.02% 0.02%
Others 0.02% 0.00% 0.01% 0.01% 0.02% 0.01% 0.01% 0.01%
EBIT 0.37% 0.41% 0.38% 0.33% 0.34% 0.31% 0.29% 0.30%
Core EBIT 0.26% 0.32% 0.30% 0.26% 0.23% 0.22% 0.23% 0.25%
Exceptional items 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
PBT 0.37% 0.41% 0.38% 0.33% 0.34% 0.31% 0.29% 0.30%
Tax 0.07% 0.10% 0.09% 0.10% 0.09% 0.09% 0.08% 0.09%
PAT 0.31% 0.32% 0.29% 0.23% 0.24% 0.22% 0.21% 0.22%
RNAMC Balance sheet (INRm n) FY13 FY14 FY15 FY16 FY17 FY18 FY19F FY20F FY21F
Share capital 5,748 5,748 5,748 5,875 5,875 6,120 6,120 6,120 6,120
Reserves and surplus 8,830 9,794 9,613 12,044 13,051 16,750 16,135 17,724 19,691
Netw orth 14,577 15,541 15,360 17,919 18,926 22,870 22,255 23,844 25,811
Minority interest 38 38 89 89 - - - - -
Other liabilities 932 1,452 1,440 1,190 1,372 2,540 2,794 3,073 3,381
Provisions 64 57 128 110 216 300 330 363 399
Total liabilities 15,613 17,089 17,316 19,608 20,813 25,710 25,379 27,280 29,591
Fixed assets 200 142 71 119 2,511 2,320 2,784 2,923 3,069
Investm ents 6,025 7,412 8,349 9,108 9,465 8,710 14,023 17,236 20,767
Cash 552 652 602 795 397 6,060 1,000 1,159 1,356
Inter corporate deposits 7,000 6,250 2,000 3,150 4,265 4,015 4,015 2,008 -
Loans and advances 1,565 2,234 5,537 5,232 3,063 3,865 2,706 2,976 3,274
Prepaid expenses 470 1,030 4,238 2,881 2,062 2,578 3,223 4,028 5,035
Long term prepaid expenses 252 523 2,026 1,053 528 660 825 1,031 1,289
Short term prepaid expenses 219 508 2,212 1,828 1,535 1,918 2,398 2,997 3,747
Other assets 271 398 757 1,203 1,111 740 851 979 1,125
Total assets 15,613 17,089 17,316 19,608 20,813 25,710 25,379 27,280 29,591
Source: Company data, Nomura estimates
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Nomura | India financials 3 August 2018
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Nomura | India financials 3 August 2018
Appendix A-1
Analyst Certification
We, Amit Nanavati, Riddhi Jain and Adarsh Parasrampuria, hereby certify (1) that the views expressed in this Research report
accurately reflect our personal views about any or all of the subject securities or issuers referred to in this Research report, (2)
no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in
this Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by
Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.
Issuer Ticker Price Price date Stock rating Sector rating Disclosures
ICICI Prudential Life
Insurance IPRU IN INR 413 03-Aug-2018 Buy N/A
Reliance Nippon Life Asset
Management RNAM IN INR 268 03-Aug-2018 Buy N/A A4,A5,A6
SBI Life Insurance SBILIFE IN INR 690 03-Aug-2018 Buy N/A
A4 The Nomura Group has had an investment banking services client relationship with the subject company during the past 12 months.
A5 The Nomura Group has received compensation for investment banking services from the subject company in the past 12 months.
A6 The Nomura Group expects to receive or intends to seek compensation for investment banking services from the subject company in the
next three months.
Reliance Nippon Life Asset Management (RNAM IN) INR 268 (03-Aug-2018) Buy (Sector rating: N/A)
Chart Not Available
Valuation Methodology Our TP of INR315/share implies 32x Sep-20F core earnings adjusted for 1x value assigned to its
investment book. Nifty is the benchmark for the stock.
Risks that may impede the achievement of the target price Significant slowdown in net inflows and compression in yields is
the key risk.
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Nomura | India financials 3 August 2018
ICICI Prudential Life Insurance (IPRU IN) INR 413 (03-Aug-2018) Buy (Sector rating: N/A)
Rating and target price chart (three year history)
Date Rating Target price Closing price
25-Jul-18 550.00 403.60
25-Apr-18 570.00 437.149
20-Jan-18 540.00 428.523
05-Jan-18 Buy 393.07
05-Jan-18 490.00 393.07
For explanation of ratings refer to the stock rating keys located after chart(s)
Valuation Methodology Our TP of INR550 implies 3x Sep-20F EV multiple. The benchmark index for this stock is Nifty 50.
Risks that may impede the achievement of the target price Capital market volatility and higher tax rates are key downside
risks.
SBI Life Insurance (SBILIFE IN) INR 690 (03-Aug-2018) Buy (Sector rating: N/A)
Rating and target price chart (three year history)
Date Rating Target price Closing price
27-Apr-18 880.00 758.85
05-Jan-18 Buy 701.95
05-Jan-18 840.00 701.95
For explanation of ratings refer to the stock rating keys located after chart(s)
Valuation Methodology Our TP of INR880/share implies 3.2x FY20F EV. The benchmark index for this stock is NIFTY 50.
Risks that may impede the achievement of the target price Higher tax rate and lower persistency are the key risks.
Important Disclosures
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Nomura | India financials 3 August 2018
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by other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.
Disclaimers
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Nomura | India financials 3 August 2018
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