HDFC AMC: Market Leader in India among asset management companies.

HDFC AMC is the market Leader in India among asset management companies. Many of you might’ve invested in some of the other mutual funds but how do you feel investing in a company that manages the mutual fund? Let’s see!!

Brief Outlook:

1. HDFC AMC, backed by the stellar and trusted promoter is a joint venture between HDFC and Standard Life Investments Limited with HDFC retaining nearly 52% and the latter with 30%.

2. It has the largest AUM (Assets under management) in comparison with others,  managing nearly 3,42,524 Crores with a market share of 13-14%. That is a vast amount of money to manage.

3. They generate revenues by taking a portion of the returns the mutual fund investors make and by offering PMS.

4. The penetration of investments in Indian households is relatively far below that of other countries, so there is room for growth there. With an increasing number of people investing through SIPs, HDFC AMC is a sure beneficiary from this growth, not to mention the large Institutions, various companies investing in short-termed schemes and liquid funds.

Possible Disruptions which will benefit AMC Companies:

With apps like Paytm money and Zerodha, many households are getting aware of what mutual funds are and these are offering ‘direct’ option so as not pay any commission to the brokers. The whole asset management industry is set out to grow.

Challenges

But, there are some changes happening in this industry, like lowering of Total Expense Ratio (TER), and one far-fetched outlook that with the advent of Block Chain technology, which directly connects investors with companies and make the asset management companies obsolete. Just another perspective!

Financials:

Here is where HDFC AMC is different from its peers. It has an astounding ROCE (return on capital employed) and ROE (Return on Equity) upwards of 35% for the past five years. Its profit margins are well above 40%. It has zero debt as of March-2019.

However, it also trades premium to its peers with a P/E of nearly ~40. The performance of this company is primarily dependent on the investors’ mindset and emotions, and also on the economic cycle, the company is in. Its earnings, 3-Y avg is increasing by 20-24%.

Conclusion:

Overall, a quality company with able management, expected to grow and expand through the sales of mutual fund schemes’ distribution focussing mainly on retail investors and to some extent, institutions, and companies as well.