Nippon Life Asset Management: a Promising Pick in India's Macroeconomic Boom
Formerly known as Reliance Capital, Nippon Life AMC primarily runs mutual funds in India. The promoter of the firm is Nippon Life, the largest Japanese insurance company that holds more assets under management globally, than India's entire mutual fund market. This shows that this 131 year old company is not only experienced in finance but also provides robust returns for global investors.
Furthermore, about 2-3% of India's total population is invested in capital markets and with mutual funds' primary clients coming from the top 15 cities in India, it is clear that the mutual fund market will see great rural development in India. Hence, AMC companies like HDFC AMC are trading at very high PE ratios, as they are seen to grow well throughout the year. Similarly for Nippon Life AMC, the company is backed by a robust group which would allow it to employ the best fund managers and pick out the right growth strategies, that can be reflected through the company's CEO Sundeep Sikka who is pushing for domestic growth through acquiring young and long-term clients. Nippon Life AMC has around Rs 200,000 crore of assets under its management.
AMCs have a very robust business model, earning a commission on investment returns for their consumers. This means that they do not need to have large debts in order to run their business. One of the good things to see is that the company holds over Rs 500 crore in cash, which serves as a driver for growth through digital and physical platforms for the company.
Looking at the income statement, it is clear that company is able to convert its revenue growth into profit growth as well. However, this rate of increase in net profit, is not as rapid as that in HDFC AMC. The reason for this is that companies like Kotak Mahindra, ICICI and HDFC are able to use their robust network of banks and customer information to continue to increase their AUM by more than 1.5% per quarter, while Nippon Life AMC is only able to do so at 0.85%.
75% of shares are owned by Nippon Life, after the demerger of Reliance Capital last year. Out of the 25% available to the public, 12% is owned by institutional investors and FIIs. Some notable investors include the HDFC Trustee company (1.62%) and Barrons Emerging Markets Fund (1.49%).
In conclusion, it is clear that this company is capable of generating a steady cash flow while continuing to provide great returns on its assets. As the company starts to detach from Reliance Capital's poor brand image, I believe customer acquisition both nationally and internationally could rise over the future. Hence, if there is a sudden dip in price, or a strong growth in customer acquisition, Nippon Life AMC would be a good buy.