Lower expenses and commission payouts drive 42% profit growth at HDFC Mutual Fund in June quarter

An 86% year on year plunge in fees and commissions at India’s largest fund-house contributed to the earnings

Kumar Shankar Roy Jul 16, 2019

HDFC AMCHDFC Asset Management Company, which runs the country’s largest mutual fund HDFC Mutual Fund, on Tuesday reported 10.3% rise in total income for the April-June quarter but it was the 40% lower expenses which lifted profit after tax by 42% to about Rs 292 crore. HDFC AMC, which manages Rs 3.5 lakh crore of investor assets, earned Rs 552.75 crore as quarterly total income i.e. less than 1% (annualised) of assets.

An 86% year on year plunge in April-June 2019 fees and commissions at India’s largest fund-house was the main reason why profit grew by leaps and bounds. HDFC AMC paid Rs 83.86 crore as fees and commission expenses in April-June 2018. In April-June 2019, the company paid only Rs 11.36 crore.

Also, ‘other expenses’ fell from Rs 66.3 crore to Rs 40.6 crore, a 39% decline. The introduction of AUM-slab based expenses and the ban on upfronting of expenses could be responsible for lower costs for the asset management company.

Total Assets Under Management (AUM) of Rs 3.56 lakh crore as of June 30, was an 18% rise over Rs 3.01 lakh crore as on June 30, 2018. The mutual fund operations have a 14.7% market share in total AUM of the Indian mutual fund industry.

Particulars April-June 2019 April-June 2018 Year on Year change %
Revenue from operations 504.39 crore 471.23 crore 7% ↑
Other income 48.36 crore 29.96 crore 61% ↑
Total income 552.75 crore 501.19 crore 10% ↑
Fees and commission expenses 11.36 crore 83.86 crore 86% ↓
Other expenses 40.62 crore 66.31 crore 39% ↓
Total expenses * 122.83 crore 206.55 crore 40% ↓
Total tax 138.13 crore 89.38 crore 55% ↑
Profit after tax 291.79 crore 205.26 crore 42% ↑
Total AUM 3.56 lakh crore 3.01 lakh crore 18% ↑
* includes finance costs, employee benefit expenses, depreciation, amortization and impairment

The AUM in actively managed equity-oriented funds i.e. equity-oriented total AUM excluding arbitrage funds and index funds grew to Rs 1.68 lakh crore as on June 30, 2019 with a market share of 16.2%. The AMC continues to be the largest actively managed equity-oriented mutual fund manager in the country.

The ratio of equity-oriented assets and non-equity oriented assets is 48:52 compared to the industry ratio of 43:57. Typically, the earning from Rs 7 crore liquid AUM is equivalent to earning from just Rs 1 crore equity AUM. So, the more the equity AUM, the better is the profitability.

Equity fund AUM of HDFC Asset Management is driven by Systematic Investment Plan (SIP). As many as 3.43 million Systematic transactions with a value of Rs 1,270 crore were processed during the month of June 2019 alone.

During the quarter, the company decided to provide liquidity arrangement to certain Fixed Maturity Plans (FMPs) of HDFC Mutual Fund, to deal with the illiquidity faced by such FMPs due to their exposure to certain Non Convertible Debentures (NCDs). The NCDs pertain to Essel/Zee group entities. The liquidity arrangement entailed acquisition of such NCDs by the company from these FMPs. Consequently, during the quarter, the company has purchased such NCDs amounting to Rs 426.45 crore at the prevailing valuation yields I prices provided by independent rating agencies. These NCDs are secured by a pledge of certain listed equity shares. These NCDs are classified as financial assets at fair value through profit and loss and have been appropriately valued at quarter-end. Subsequently, under the same arrangement, the company said it has additionally purchased NCDs amounting to Rs 33.26 crore on July 1, 2019.

HDFC Asset Management has over 75,000 empanelled distribution partners across IFAs, National Distributors and Banks, serviced through a total of 211 branches of which 135 are in B-30 locations. The contribution of B-30 locations to the company’s total monthly average AUM is 13.8%.

HDFC Asset Management witnessed an increase of 10% in the number of live individual accounts from 8.36 million as of June 30, 2018 to 9.20 million, as of June 30, 2019. As of June 30, 2019, 59.2% of the company’s total monthly average AUM is contributed by individual investors compared to 54.3% for the industry.

Its unique customers as identified by PAN or PEKRN now stand at 5.4 million as on 30th June 2019 compared to 19.6 million for the industry, a market share of 28%.

Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. Kumar is a financial journalist, with a functional experience of 15 years. He tracks mutual funds, insurance, pension, PMS, fixed income/debt and alternative investments markets closely. He has worked for The Times of India, The Hindu Business Line, Deccan Chronicle Group, DNA, and Value Research, among others, across different cities in India. He is deeply interested in marrying data insights with actionable opinion. He can be contacted at [email protected].

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