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Morgan Stanley downgrades HDFC AMC, raises price target

The brokerage has given an ‘equal weight’ rating to the company and has raised the target price to Rs 2,650.

ET Bureau|
Sep 05, 2019, 07.59 AM IST
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HDFC AMC has seen strong market share gains on strong inflows via systematic investments and in liquid mutual funds.
Morgan Stanley has downgraded HDFC Asset Management Company to ‘equal-weight’ citing a steep rally in its share price since the beginning of the year.

Shares of HDFC AMC have rallied 73 per cent since January 1 to a record high of Rs 2,697 on Tuesday on the back of constant re-rating by several brokerages following strong earnings in the past three quarters.

HDFC AMC has seen strong market share gains on strong inflows via systematic investments and in liquid mutual funds owing to the flight to safety from other mutual fund categories that were impacted due to exposures to stressed corporates and NBFCs/HFCs, cited a report by Morgan Stanley Investment Baking Company.

“We see limited upside to our assumptions for AUM growth and operating profit margins post sharp expansion. Sharp rerating to 41 times its FY 2021 P/E has likely also been driven by free cash flow and balance sheet light business in tough macro conditions, but upside seems tough given weak markets,” said the brokerage.

The brokerage has given an ‘equal weight’ rating to the company and has raised the target price to Rs 2,650, which in turn raises the target PE to 38 times from 33 times.

The rating is also driven by an improved relative positioning within the financials space being a free cash flow, balance sheet light business, with many others facing funding and or asset quality challenges.

“We think operating profit/AAAUM has almost peaked for now and see little upside to our forecast of 42bp. We find it tough to see upside to our F20 and F21 AAAUM growth forecasts of 13 per cent and 18 per cent, respectively,” said the brokerage.

For FY19, HDFC AMC reported a net profit of Rs 930.6 crore with the total asset under management (AUM) of Rs 3,22,464.8 crore with a return on average AUM of 0.18 per cent.

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