Release Date: July 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- HDFC Asset Management Co Ltd (NSE:HDFCAMC, Financial) surpassed INR7 trillion in AUM, with a significant tilt towards equity at 64.3%.
- The company added 1.1 million unique investors this quarter, reaching a total of 10.7 million unique investors.
- Revenue from operations increased to INR7,752 million, marking a growth of 35% YoY.
- Operating profit grew by 40% YoY, and PAT increased by 26% YoY to INR6,039 million.
- Debt-oriented funds saw a turnaround with net inflows of INR709 billion, following three consecutive quarters of outflows.
Negative Points
- Employee benefit expenses increased due to year-end increments and a rise in headcount by 280 people.
- Other expenses shot up, attributed to general business expenses, new fund offer expenses, KYC expenses, and outsourced service costs.
- The company opened only one new branch this quarter, with no significant plans for further expansion in the near term.
- The effective tax rate was low due to assets moving from short-term to long-term buckets, which may not be sustainable throughout the year.
- The equity yield saw a slight decline due to the rapid increase in AUM, impacting overall revenue margins.
Q & A Highlights
Q: The employee benefit expenses have gone up. Is this due to variable payout in Q1?
A: The increase in employee costs is due to year-end increments, an increase in headcount by 280 people, and investments in learning and development. It's not just performance pay.
Q: Other expenses have also increased. What are the reasons for this?
A: The increase in other expenses is due to general business expenses, new fund offer (NFO) expenses, KYC expenses, and outsourced service costs. These are necessary for additional AUM and future growth.
Q: Can you elaborate on the strategic consideration behind the shift in assets under management (AUM) towards equity funds?
A: The equity-oriented assets are now at 64%. This shift is due to higher mark-to-market gains and significant SIP flows into equity funds. We aim to grow all segments, including fixed income.
Q: Are there any upcoming initiatives related to new fund offers (NFOs)?
A: We recently launched a successful NFO and an index fund. Our product bouquet is largely complete, and we aim to consolidate our position in existing funds.
Q: Why have employee expenses increased sequentially by 17% Q-on-Q?
A: The increase is due to annual increments, initial valuations for leave encashment, and a large employee engagement event. We recommend looking at annual expenditure for a clearer picture.
Q: Why is the tax rate low, and how should we look at it for the full year?
A: The low tax rate is due to assets moving from short-term to long-term buckets, providing DTA benefits. This is similar to Q1 of last year.
Q: Can you provide insights into the areas where new employees are being hired?
A: We added 24 branches, set up a dedicated channel for HDFC Bank, expanded our technology and digital teams, and hired investment resources for our alternative business. Most hires are in sales and client services.
Q: How do you view earnings from a 2-3 year perspective given the high equity portion of AUM?
A: While equity markets are cyclical, the growth in SIPs and systematic investing gives us confidence in sustainable growth. We also see potential in fixed income, which hasn't grown much recently.
Q: What is the impact of NFOs on margins, and how do you see this evolving?
A: NFOs generally have higher commissions, but our recent NFO exceeded expectations, leading to lower margins. However, this is a good problem to have, and we expect margins to improve over time.
Q: Can you explain the increase in other expenses and how it affects future quarters?
A: The increase is mainly due to NFO costs. We recommend looking at annual growth rates for a clearer picture. We see these expenses as healthy investments for long-term growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
