On Wednesday, CLSA upgraded HDFC Asset Management Co Ltd (HDFCAMC:IN) from a Hold to an Outperform rating, while also increasing the price target from INR4,450 to INR4,920. The revision follows the company's second-quarter financial year 2025 profit before tax, which at Rs8.6 billion, surpassed CLSA's expectations by 11%. This outperformance was attributed to higher-than-anticipated assets under management (AUM) growth and yields.
HDFC AMC's AUM saw an impressive year-over-year growth of 46%, with the equity segment expanding by 64%. This growth was further bolstered by an expansion in yields, which grew by 1 basis point quarter-over-quarter, driven by a larger equity mix and the rationalization of brokerages. The firm's net inflows have been predominantly through systematic investment plans (SIPs) and new fund offerings (NFOs), providing a clearer outlook for AUM growth.
In light of the recent changes to capital gains tax announced in the budget on July 5, 2024, the tax rate experienced some one-off effects but is expected to stabilize in the next quarter. CLSA has revised its forecast for AUM growth for the fiscal year 2025 to 29% year-over-year, leading to an increase in net profit estimates for the fiscal years 2025 to 2027 by 5-9%.
The upgrade in rating and price target is also a result of CLSA rolling forward its valuation and applying a 35.5 times price-to-earnings (PE) ratio to the September 2026 forecasted earnings. CLSA has expressed a preference for asset management companies over insurance in the near term, as reflected in the positive outlook for HDFC AMC.
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