Initiating Coverage: UTI AMC
06-04-2023

About

UTI Asset Management Company Ltd is primarily engaged in the activities of raising funds for and to render investment management services to schemes of UTI Mutual Fund. It is registered with SEBI under the SEBI (Mutual Funds) Regulations, 1996. It was the first to introduce Mutual Funds in India and is focused solely on Investment management and related services.

Industry

Indian Mutual Fund (MF) industry exhibited a robust 18% CAGR in average asset under management (AAUM) from 6.65 trillion as of March 31, 2012 to 39.05 trillion as of September 30, 2022, with mutual fund AUM as a percentage of GDP penetration rising from 4.3% in Fiscal 2002 to 16.9% at end of September 2022. Although this rise is substantial, it’s still below global average AUM to GDP ratio of 74%.

Monthly SIPinflowsgrew at CAGR of 22% between March 2017 and September 2022 from 43 billion to 130 billion. With number of SIP accounts increasing from 21.10 million as of March 2018 to 58.38 million as of September 2022.

MF AUM is expected to grow even further at CAGR of 14% to reach 74.2 Trillion by FY27.

Business Model

AMC works by providing Investment products to Individual and Institutions. These products are Passive (based on index) and Active (based on Research). Major expenses incurred are employee expense, technology costs, distribution & sales cost. AMC business is asset light business, where costs are generally fixed and margins grow as flow of funds into various schemes offered increases. AMC can use operating leverage to improve overall profitability as AUM goes up.

PMS

Under PMS space, manages index funds and ETFs (unlike traditional PMS) for India’s Employee Provident Fund Organization (EPFO), one of two fund managers (SBI MF being the second) appointed to manage the corpus. It has also been appointed fund manager for Coal Mines Provident Fund Organization (CMPFO), Employee State Insurance Corporation (ESIC), and National Skill Development Fund (NSDF). EPF segment has funds of about Rs 1.25 trillion in equities as on Jan 2023. Under this segment yields earned are at 0.3 bps.

Mutual Fund

UTI AMC is the eighth largest fund house in India with QAAUM of Rs 2,40,841 Crore and 5.98% market share in the Rs 39 Trillion AMC industry and 4.82% market share in Equity MF. As of FY22, it managed 93 MF schemes across investment strategies. Under equity funds UTI manages AUM of 72,308 Cr generating yield of 80-90 bps, it manages 84,539 Cr in ETF and Index segment with market share of 12.6%.

UTI International

The Group manages assets equivalent to Rs 2.5tn across 3 asset classes – equities, debt and private credit for institutions such as pension funds, insurance companies, private banks, wealth managers and family offices. It generates yields of about 45-55 bps.

Retirement Solutions

UTI RSL manages domestic pension assets under the National Pension System (NPS), manages 27.01% of the NPS Industry AUM. It holds a license issued by Pension Fund Regulatory & Development Authority (PFRDA) to manage government and non-government NPS. The subsidiary has clocked a robust AUM CAGR of 31% over five years and manages AUM of 230,560 Cr as on 31st December 2022. Yield earned in this segment is around 3.5 bps.

Business Performance

Check 10 year X-ray

Risks

Reduction in fees charged on AUM.

Underperformance of schemes to competitors as well index, higher tracking error in ETF space.

Loss of market share in Mutual Fund and pension fund segment.

Inability to on-board private pension providers.

Competition

UTI faces competition from various AMC in country in mutual fund and NPS segments.

UTI competes with SBI in EPFO funds share.