Nippon AMC: Moving towards safe future

Nippon Life India Asset Management Company (Nippon AMC) reported a decent performance during the fiscal third quarter to December 2019.

The AMC clocked a 36.4% increase in consolidated net profit at Rs 149.32 crore in Q3 December 2019 as against Rs 109.52 crore reported in Q3 December 2018.

Total income fell 10.73% to Rs 360.64 crore on year.

Profit before Tax (PBT) rose 18.56% to Rs 193.64 crore as compared to Rs 163.32 crore in the corresponding quarter a year ago. Total tax expense fell 17.25% to Rs 44.34 crore on year.

Asset under Management (AUM) for as on 31 December 2019 stood at 3,10,100 crore. Post takeover by Nippon Life, the company witnessed a reversal in AUM growth after four quarters of decline, MF assets under management (QAAUM) stood at Rs 2,04,370 crore.

Nippon AMC is the largest ETF players with approximately 16% market share (in terms of QAAUM).

The company rebranded itself from Reliance Nippon Life Asset Management’ to Nippon Life India Asset Management.’ Nippon Life Insurance of Japan on 27 September 2019 announced that it has successfully completed the acquisition of a 75% stake in Reliance Nippon Life Asset Management (RNAM) from Reliance Capital.

Post rebranding, the AMC has seen the return of several leading Corporations, SME’s and HNI’s. This fact reflects in its AUM inflows.

It plans to capitalise on the distribution network and make inroads into smaller cities and towns to attract more investments from retail investors as a profitable growth strategy.

In the case of RNAM, we believe that the company has nurtured its distributor relationships over the years.

We also understand that distributors have been made aware of the change in promoter as well as about Nippon Life.

As an additional step to address this issue, the company has been interacting with IFAs as well as running regional marketing campaigns.

The company remains committed to building a strong retail business on the back of SIPs and higher B30 penetration.

What is also comforting is that acquisition of the retail business by way of offering higher distributor commissions has been clearly ruled out as a strategy by the company.

Rather, the focus will be on sustainable and organic growth. We are building an increasing share of equity AUM over FY20-22E.

We understand that the current management has cultivated good relationships with distributors which would be essential for retail growth going forward.

Employees are expected to end up owing a substantial portion of the company’s stock through ESOPs, which would mean a higher degree of employee retention and more skin in the game.

Hence we believe that post the acquisition of 100% control in the company by Nippon the long term prospects would further get a strong boost as there is huge scope in India to increase the retail footprint in financial assets which are fast-growing unlike physical assets like gold and property which still account for a large share and hence investors can consider this to be an annuity business where now fresh competition is limited but existing large players will benefit significantly over the longer term.

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