Nippon Life India Asset Management Ltd:Annual Report 2023-24 Analysis

Nippon Life India Asset Management Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History:

Nippon Life India Asset Management Limited (NAM India) was established in 1995 as Reliance Capital Asset Management Limited. In 2012, Nippon Life Insurance of Japan acquired a significant stake in the company, and it was renamed Reliance Nippon Life Asset Management Limited. In 2019, the name was further changed to Nippon Life India Asset Management Limited.

Headquarters Location and Global Presence:

The company’s headquarters are located in Mumbai, India. NAM India primarily operates within the Indian market but benefits from its association with Nippon Life Insurance, which provides access to global expertise and resources.

Company Vision and Mission:

• Vision: To be a leading and trusted asset manager, delivering superior investment solutions to clients.
• Mission: To provide innovative and customer-centric investment products and services, driven by a strong research-based approach and ethical business practices.

Key Milestones in Their Growth Journey:

• 1995: Inception as Reliance Capital Asset Management Limited.
• 2012: Nippon Life Insurance acquires stake, becomes Reliance Nippon Life Asset Management Limited.
• 2017: Initial Public Offering (IPO).
• 2019: Renamed Nippon Life India Asset Management Limited.
• Expansion of product offerings and AUM growth throughout the years.

Stock Exchange Listing Details and Market Capitalization:

NAM India is listed on both the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

Recent Financial Performance Highlights:

Review of their publicly available financial statements for the most recent fiscal years (including revenue, profit, assets under management (AUM) and growth rates) is recommended for this section.

Management Team and Leadership Structure:

• CEO: Saugata Chatterjee.
• Other key management personnel information can be found on their website.

Notable Awards or Recognitions:

NAM India has received awards for its fund performance, innovation, and service quality from various industry organizations.

Their Products #

Complete Product Portfolio with Categories:

• Equity Funds: Large Cap, Mid Cap, Small Cap, Multi Cap, Thematic Funds.
• Debt Funds: Liquid Funds, Corporate Bond Funds, Credit Risk Funds, Gilt Funds.
• Hybrid Funds: Balanced Advantage Funds, Equity Savings Funds, Conservative Hybrid Funds.
• Exchange Traded Funds (ETFs): Gold ETFs, Equity ETFs, Debt ETFs.
• Index Funds: Replicating various indices like Nifty 50, Sensex.
• International Funds: Investing in global markets.
• Pension Funds: Retirement planning solutions.
• PMS (Portfolio Management Services): Tailored investment solutions for high-net-worth individuals.

Flagship or Signature Product Lines:

• Their various equity funds focused on different market caps.
• Debt funds catering to varying risk appetites.
• Index Funds and ETFs tracking popular indices.

Recent Product Launches or R&D Initiatives:

NAM India continuously launches new schemes and explores innovative investment strategies to cater to evolving market needs. Review their website for recent announcements of NFOs and other product developments.

Primary Customers #

Target Industries and Sectors:

NAM India caters to a diverse range of investors across sectors, including:

• Retail Investors: Individuals seeking investment options for wealth creation.
• High-Net-Worth Individuals (HNWIs): Clients seeking customized portfolio management services.
• Institutional Investors: Corporates, pension funds, and other institutions.

Geographic Markets (Domestic vs. International):

NAM India’s primary focus is the domestic Indian market.

Distribution Network and Sales Channels:

• Direct Sales: Through their website and branch network.
• Independent Financial Advisors (IFAs): Partnering with IFAs to reach a wider customer base.
• Banks: Distribution tie-ups with banks for product sales.
• Online Platforms: Leveraging online channels for digital distribution.

Major Competitors #

Direct Competitors in India and Globally:

• HDFC Asset Management Company Limited
• ICICI Prudential Asset Management Company Limited
• SBI Funds Management Private Limited
• Axis Asset Management Company Limited
• Aditya Birla Sun Life AMC Limited

Competitive Advantages and Disadvantages:

• Advantages: Strong brand association with Nippon Life, diverse product portfolio, robust distribution network.
• Disadvantages: Competition from well-established players, vulnerability to market fluctuations.

Market Positioning Strategy:

NAM India positions itself as a trusted and customer-centric asset manager offering a wide range of investment solutions across various asset classes.

Future Outlook #

Expansion Plans or Growth Strategy:

• Focus on increasing AUM through new product launches and market penetration.
• Expanding distribution network and strengthening digital presence.
• Leveraging technological advancements to enhance customer experience.

Sustainability Initiatives or ESG Commitments:

NAM India increasingly focuses on incorporating ESG (Environmental, Social, and Governance) factors into their investment processes.

Industry Trends Affecting Their Business:

• Increasing adoption of digital investment platforms.
• Growing demand for passive investment products like index funds and ETFs.
• Rising awareness of ESG investing.
• Regulatory changes impacting the asset management industry.

Long-Term Vision and Strategic Goals:

NAM India aims to be a leading asset management company in India, delivering consistent investment performance and creating long-term value for its stakeholders.

Comprehensive Performance Overview #

3-Year Trend Analysis of Key Financial Metrics #

• Assets Under Management (AUM):
  • NIMF’s QAAUM experienced a significant growth, with a three-year CAGR of approximately 24.74% (From ₹283,261 Crore in FY22 to ₹431,308 Crore in FY24).
  • FY24 saw a decadal high growth of 47% YoY in NIMF QAAUM.
• Revenue from Operations: Shows a consistent upward trend, with a 13% increase from FY22 (₹1,307 Crore) to FY24 (₹1,643 Crore). A substantial portion is derived from management fees.
• Profit After Tax (PAT): Increased significantly, recording a 53% growth from FY23 (₹723 Crore) to ₹1,107 Crore in FY24 and an 8% increase from FY22(₹744 Crore).
• Operating Profit: Grew by 47.11% from 760 Crore in FY22, and 25.88% from 761 Crore in FY23.
• Systematic Book: Demonstrates strong growth, more than tripling from ₹733 Crore in FY22 to ₹2,329 Crore in FY24.
• Unique Investors: Witnessed substantial growth, increasing from 1.2 Crore in FY22 to 1.65 Crore in FY24.
• Total Folios: Increased steadily, reaching 2.43 Crore in FY24 from 1.7 Crore in FY22.
• Return on Equity: 29.5% in FY24, up from 20.7% in FY23, indicating improved profitability relative to shareholders’ equity.

Business Segment Performance #

• Mutual Funds (NIMF):
  • Equity QAAUM constitutes the largest segment, growing to 49.2% of total QAAUM in FY24, up from approximately 42.03% in FY22.
  • ETF QAAUM also saw a significant increase, reaching 25.9% of the total in FY24, up from 24.36% in FY22.
  • The Debt and Liquid segments’ shares decreased, indicating a shift in investor preference towards Equity and ETFs.
  • Market share increased across most asset categories, especially in Equity, Debt, and ETFs.
  • Systematic Investment Plan (SIP) inflows were robust, with a systematic AUM of ₹98,738 Crore in FY24 and an annualized systematic book of ₹28,000 Crore, showcasing increased market share.
• Alternative Investment Funds (AIF):
  • Managed by subsidiary NIAIF, with 20 schemes across four business lines.
  • AIF commitments totaled ₹6,191 Crore as of March 2024.
  • AUM grew 39% YoY in FY24.
• Portfolio Management Services (PMS):
  • Offers discretionary and advisory services to high-net-worth individuals and institutional investors.
  • Focus on benchmark-agnostic, concentrated portfolios based on fundamental research.
  • PMS AUM as on March 31, 2024, stood at 72,884 Cr.
• Offshore Business:
  • Managed through subsidiary NAM Singapore and a representative office in Dubai.
  • Offshore AUM grew by 52% YoY in FY24, reaching ₹13,421 Crore.
  • Expanded distribution network to new geographies in Asia, Europe, and Latin America.

Major Strategic Initiatives and Their Progress #

• Digital Initiatives:
  • Significant investment in digital infrastructure resulted in a 2x growth in digital transactions in FY24, reaching 6.6 million.
  • Digital contribution to total NIMF purchases and new SIP registrations reached 60%.
  • Launched the Nippon India MF Mobile App and Simply Save app.
  • Enabled Business Easy WhatsApp for Distributors and NIMF WhatsApp Channel for investors.
• Physical Distribution Network Expansion:
  • Maintained a wide presence with 263 locations across the country, including 192 branches.
  • Focused on B-30 locations, with AUM from these areas accounting for 19.5% of total MF AUM.
• Product Innovation:
  • Launched new schemes, including the Nippon India Fixed Maturity Plan XLVI Series 1, Nippon India Innovation Fund, Nippon India Nifty IT Index Fund, and Nippon India Nifty Bank Index Fund.

Risk Landscape Changes #

• Emphasis on increased risk and compliance functions, with dedicated and experience professionals, reflecting a responsive approach to risk management.
• Promotes Risk awareness culture in the company.
• De-risked distribution model, with the highest single distributor concentration at approximately 5% of AUM.

ESG Initiatives and Metrics #

• Environmental:
  • Adoption of an ESG framework aligned with UNPRI principles.
  • Efforts to reduce carbon footprint through the use of LED lights and 5-star air conditioning in most offices.
• Social:
  • CSR activities focused on promoting healthcare, education, and rural development.
  • Increased representation of women employees, from 16% to 20% over the past four years.
• Governance:
  • Commitment to high standards of corporate governance and ethical practices.
  • Received the Kincentric Best Employer Award for 2023, marking the sixth win in eight years.

Management Outlook #

• Optimistic about future growth, both for the Indian economy and the Mutual Fund industry.
• Focus on future growth with an emphasis on risk management.
• Commitment to building a granular and retail investor base, with a focus on smaller cities and towns.
• Continued investment in digital and physical infrastructure to enhance customer reach and efficiency.
• Dividend policy to distribute 60%-90% of profits, with a 99% payout ratio in FY24.

Detailed Analysis #

Balance Sheet Analysis #

3-Year Comparative Analysis (Consolidated, ₹ in Crores) #

Significant Changes in Major Line Items (>10% YoY) #

• Receivables: Increased by 34.53%, primarily due to growth in trade receivables.
• Investments: Increased by 16.19%, reflecting growth in AUM.
• Other Financial Assets: Decreased by 22.72%.
• Current Tax Assets: Increased by 23.84%.
• PP&E: Increased by 45.37%.
• Other Non-Financial Assets: Decreased by 27.19%.
• Payables: Decreased by 24.36%, primarily due to changes in trade payables.
• Other Financial Liabilities: Increased by 43.22% mainly due to Lease liabilities.
• Current tax liabilities: Decreased by 73.05%.
• Provisions: Decreased by 33.75%.
• Deferred Tax Liabilities (Net): Increased by 26.18%.
• Other Non-Financial Assets: Increased by 31.09%.
• Other Equity: Increased by 15.89%, primarily due to retained earnings and share-based payment transactions.

Asset Quality Metrics #

• Impairment Loss Allowance on Loans: Decreased from ₹1.01 crores to ₹0.64 crores, indicating an improvement.
• All Trade receivables are categorized as ‘Receivables considered good - Unsecured’.

Debt Structure and Maturity Profile #

• The Group is debt-free as there is no debt.
• Lease liabilities are disclosed: maturity profile shown as part of point B of note 29.

Off-Balance Sheet Items #

• Guarantees to Banks and Financial Institutions: Increased significantly from ₹1.31 crores to ₹11.32 crores.
• Claims not acknowledged as debts: Decreased from ₹6.15 crores to ₹5.64 crores.
• Commitments: Increased from ₹21.82 to ₹71.61 Crores.

Segment-Wise Financial Analysis: Nippon Life India Asset Management Limited #

Revenue Breakdown #

• Segment: Asset Management Services contribute 100% of total revenue.
• Geographical Revenue (Managed Assets):
  • Offshore business AUM: ₹13,421 Crore (52% YoY growth).
  • Advisory mandates: ₹2,176 Crore.
  • Domestic business: 19.5% from B-30 locations.

Cost Structure Analysis #

• Employee benefit expenses: ₹336.02 Crore (11% YoY growth).
• Fee and Commission expenses: Increased by 24%.
• Other expenses: Increased by 25%.
• Depreciation: Decreased by 3%.

Margin Analysis #

• Operating Profit FY24: ₹958 Crore (5-year CAGR of 13%).
• Profit After Tax (PAT) FY24: ₹1,107 Crore (53% YoY increase, 5-year CAGR of 14%).

Operating Leverage #

• Faster PAT growth (53%) compared to revenue growth (21.7%) suggests positive operating leverage.

EPS Analysis #

• Basic EPS FY24: ₹17.71 (increased from ₹11.61 in FY23).
• Diluted EPS FY24: ₹16.58 (increased from ₹11.40 in FY23).

Quarterly Trends #

• Continuous growth in quarterly Systematic Investment Plan (SIP) flows.
• QAAUM market share with the highest YoY increase amongst AMCs.

Cash Management Analysis #

Cash Flow Analysis (Consolidated, in Crores INR) #

FY24: #

• Operating Cash Flow (OCF): 777.48
• Investing Cash Flow (ICF): (103.82)
• Financing Cash Flow (FCF): (670.70)

FY23: #

• Operating Cash Flow (OCF): 586.56
• Investing Cash Flow (ICF): 98.43
• Financing Cash Flow (FCF): (711.65)

Working Capital Analysis #

• Trade receivable increased from 86.79 Cr in FY23 to 115.56 Cr in FY24.
• Trade Payable decreased from 66.20 Cr to 50.07 Cr.
• Other Financial Liabilities showed an increase.

Capex Analysis #

• Total Property, plant and equipment purchase, intangible assets, and capital work-in-progress: ₹11.66 Crore (FY24), ₹(9.89) Crore (FY23).
• Additions to Gross carrying amount were ₹ 46.82 Crore in FY24.

Dividend Trends #

FY24: #

• Interim Dividend Paid: ₹343.68 Crore.
• Final Dividend Declared: ₹11.00 per share (subject to AGM approval).
• Total distribution for FY24 including interim would be approximately ₹ 1037 Crore.

FY23: #

• Interim Dividend Paid: ₹249.23 Crore.
• Final Dividend Paid: ₹466.88 Crore.

Liquidity Position #

• Cash and Cash Equivalents: ₹24.23 Crore (FY24), ₹21.26 Crore (FY23).
• Bank Balances (Other): ₹246.32 Crore (FY24), ₹251.48 Crore (FY23).

Financial Analysis: Key Performance Indicators #

Profitability Ratios (3-Year Trends) #

Return on Equity (ROE) #

• FY24: 29.5%
• FY23: 20.7%
• FY22: 22.6%

Analysis: ROE has significantly improved in FY24, demonstrating increased profitability relative to shareholders’ equity. The increase from FY23 to FY24 is substantial, up by 8.8 percentage points.

Operating Profit Margin #

• FY24: 58.3% (958 Crore / 1,643 Crore)
• FY23: 56.4% (761 Crore / 1,350 Crore)
• FY22: 58.1% (760 Crore / 1,307 Crore)

Analysis: The Operating Profit Margin has improved slightly from the previous years, which shows better cost control.

Profit After Tax (PAT) Margin #

• FY24: 67.4% (1,107 Crore / 1,643 Crore)
• FY23: 53.6% (723 Crore / 1,350 Crore)
• FY22: 56.9% (744 Crore/1307 Crore)

Analysis: PAT Margin significantly improved during FY24, with growth in profits.

Efficiency Ratios #

Asset Turnover Ratio #

• FY24: 0.42 (1643/((4158.53+3697.56)/2))
• FY23: 0.37(1350/((3697.56+3500.39)/2))

Analysis: The asset turnover ratio improved slightly in FY24, reflecting a more efficient use of assets in generating revenue.

Receivables Turnover #

• FY24: 14.99(1643/((86.79+115.56)/2)
• FY23: 18.66 (1350/((159.16+86.79)/2)

Analysis: The ratio decreased in FY24.

Key Deviations/Highlights #

• The most striking deviation is the sharp increase in ROE and Operating Profit Margin, exceeding the industry’s.
• The company’s improved asset turnover ratio, in the absence of a directly comparable industry average, suggests enhanced operational efficiency.

Financial Performance Analysis #

Revenue and Profitability #

• Consolidated Revenue (FY24): ₹2,037.34 crore, a 21.1% YoY growth from ₹1,516.61 crore in FY23.
• Consolidated Profit Before Tax (FY24): ₹1,352.48 crore, a 45.8% YoY growth from ₹927.74 crore in FY23.
• Consolidated Profit After Tax (FY24): ₹1,106.25 crore, a 53.0% YoY growth from ₹722.93 crore in FY23.
• Standalone Revenue (FY24): 1,877.08 Cr, a 31.18% Increase from FY23.
• Standalone profit before tax (FY24) 1,294.48 Cr, a 41.04% Increase from FY23.
• Stanalone profit after tax(FY24): 1,047.23 Cr, a 46.46% Increase from FY23.
• Mutual Fund QAAUM (FY24): ₹4,31,308 crore, a 47.1% YoY growth, outpacing the industry growth of 33.6%.
  • Equity QAAUM: ₹2,12,252 crore, 63% YoY growth.
  • Debt QAAUM: ₹68,135 crore, 26% YoY growth.
  • Liquid QAAUM: ₹39,379 crore, 1% YoY growth.
  • ETF QAAUM: ₹1,11,542 crore, 59% YoY growth.
• Managed Account AUM (FY24) grew by 39%
• Offshore Business AUM grew by 52% YoY

Market Share and Competitive Position #

• Overall QAAUM Market Share: Increased by 73 bps YoY to 7.97% in FY24, the highest increase among all AMCs.
• Equity QAAUM Market Share: Increased by 58 bps YoY to 6.76%.
• Debt QAAUM Market Share: Increased by 53 bps YoY to 6.65%.
• ETF Market share: Increased by ~300 bps to 16.7%
• ETF QAAUM Market Share: 16.71% in FY24, up from 13.74% in FY23.
• B-30 AUM Market Share: Improved by 63 bps in FY24 to 8.77%.
• SIP Market Share: Increased by 305 bps, reaching 9.1% in March 2024.
• Individual Segment (Retail + HNI) Market Share: Increased to 7.74% (up 75 bps YoY).
• Corporate Segment Market Share: Increased to 8.49% (up 73 bps YoY).
• Moved up two position to 4th in terms of total Equity AUM-excluding Arbitrage.
• Ranking: Remained 4th in total QAAUM, moved up to 4th in equity AUM (excluding arbitrage).
• Unique Investor Market Share: Increased to 37%, maintaining the largest investor base in the industry.
• Volume Market Share: ETF segment with a volume share of 60%+ on the exchange.

Product and Service Performance #

• Mutual Funds:
  • 86 open-ended schemes (43 active, 43 passive).
  • Strong performance in Equity and ETF categories, driving AUM growth.
  • Passive AUM crossed ₹1,00,000 crore.
  • Systematic book grew 109% YoY.
• Alternative Investment Funds (AIF):
  • Managed by subsidiary NIAIF, with 20 schemes across 4 business lines.
  • Total commitments of ₹6,191 crore as of March 2024.
  • AUM grew by 39% YoY.
  • Launch of “Nippon India Credit Opportunities AIF Scheme 1”.
  • Commencement of marketing for “Nippon India Digital Innovation Fund-2”.
• Portfolio Management Services (PMS):
  • Offered to HNIs, UHNIs, and institutional investors.
  • Four equity strategies, all outperforming benchmarks.
  • Total PMS and managed accounts AUM of ₹72,884 crore.
• Offshore Business:
  • Managed through NAM Singapore and Dubai representative office.
  • Offshore AUM of ₹13,421 crore, with advisory mandates of ₹2,176 crore.
  • Managed AUM grew by 50% YoY.
  • Co-Investment Manager for India Fixed Income ETF.

Geographic Distribution and Market Penetration #

• Extensive Presence: 263 locations across India, including 192 branches.
• B-30 Focus: NIMF’s B-30 AUM grew 55% YoY, exceeding the industry growth of 44%.
• Investors from: >59,000 pincodes in India.

Operational Efficiency Metrics #

• Digital Transactions: 60% of total NIMF purchase and new SIP registrations were digital in FY24.
• Digital Transaction Growth: Total digital transactions (Lumpsum + new SIPs) increased 2x over FY23, reaching 6.6 million.
• New SIP Registrations: Grew 2.5x digitally in FY24.
• Digital Platform Usage: New digital purchases or SIP purchases were registered every 19 minutes in FY24.
• One of the Top 3 in terms of consumer choice across digital distribution platforms.

Growth Initiatives and Challenges #

• Growth Initiatives:
  • Continued focus on Retail, HNI, and Corporate segments.
  • Expansion of product offerings, including AIF and Offshore businesses.
  • Strengthening digital capabilities and partnerships.
  • Expansion of physical distribution network in strategic locations.
  • Focus on B-30 cities for growth.
  • Leveraging Nippon Life Japan’s global network.
  • Continued investment in technology and innovation.
• Challenges:
  • Geopolitical uncertainties and their impact on global markets.
  • Elevated valuations and potential volatility in equity markets.
  • Sustaining corporate earnings growth to match pricing expectations.
  • Competition among AMCs for AUM growth.
  • Regulatory Changes

Risk Framework #

Strategic Risks #

• Severity: High. Strategic risks, particularly concerning competition and market penetration, could significantly impact long-term growth and profitability.
• Likelihood: Medium. The Mutual Fund industry is competitive.
• Trend: Increasing. Competition from new and existing AMCs, along with direct investing culture, is intensifying.
• Mitigation Strategies: Diversified product offerings, expansion into B-30 cities, focus on digital channels, and leveraging Nippon Life Japan’s global network.
• Control Effectiveness: Partially effective. Market share gains indicate some success, but dependence on retail and B-30 markets introduces volatility.
• Potential Financial Impact: Unclear, the absence of a parent banking partner is listed as a factor to fast growth, so it’s ambigious on how competition will influence it.

Operational Risks #

• Severity: Medium. Operational risks, including those from outsourcing and technology dependence, could disrupt services.
• Likelihood: Medium. Risks related to system automation, operational failure, and human errors.
• Trend: Stable. Investment in process automation (2x growth in digital transactions and 60% digital contribution) and risk management systems.
• Mitigation Strategies: Process automation, ISO 9001:2008 certification, Risk & Control Self-Assessment (RCSA), and dedicated quality team.
• Control Effectiveness: High. Comprehensive internal control system. Internal audit functions report to the Audit Committee.
• Potential Financial Impact: There are comprehensive systems in place.

Financial Risks #

• Severity: Medium. Exposure to market fluctuations, interest rate changes, and credit risks related to investments.
• Likelihood: Medium. Inherent in the nature of investment management business.
• Trend: Stable. The debt yields moderate, demonstrating overall stability, and the investments are increasing year over year.
• Mitigation Strategies: Diversified investment portfolio, credit risk assessment, and liquidity management.
• Control Effectiveness: Strong risk management framework and risk reporting, with improvements of wallet share and increase in corporate and individual investments.
• Potential Financial Impact: The Company has a robust portfolio.

Compliance/Regulatory Risks #

• Severity: Medium. Stringent regulations by SEBI and other authorities.
• Likelihood: Medium. Due to the nature of the regulated financial services industry, continuous compliance monitoring is required.
• Trend: Stable, with a strong focus on compliance.
• Mitigation Strategies: Dedicated Compliance and Risk Management teams, comprehensive Compliance Manual, regular training programs, zero-tolerance policy for breaches.
• Control Effectiveness: High, The compliance team and committee ensure breaches are addressed.
• Potential Financial Impact: The Company does have pending legal disputes and the possibility of fines.

Emerging Risks #

Cybersecurity Risk #

• Severity: High. Potential for data breaches and system disruptions.
• Likelihood: Medium. Increasing sophistication of cyber threats.
• Trend: Increasing. As digital transactions grow, exposure to cyber risk increases.
• Mitigation Strategies: Robust IT security infrastructure, regular vulnerability assessments and penetration testing (VAPT), employee training, and 24/7 monitoring.
• Control Effectiveness: Moderate. Continuous improvement in cybersecurity measures is ongoing.
• Potential Financial Impact: There are no reported data breaches.

Pandemic Risk #

• Severity: Low.
• Likelihood: Low.
• Trend: Decreasing, the mitigation strategy shows readiness for a resurgence.
• Mitigation Strategies: Business Continuity Plan (BCP) enabling remote work.
• Control Effectiveness: High, BCP testing is performed.
• Potential Financial Impact: Low, based on business continuity plan.

Climate Change Risk #

• Severity: Medium.
• Likelihood: Medium
• Trend: Increasing.
• Mitigation Strategies: NAM India is taking steps to mitigate environmental issues, focusing on offices, including energy-efficient equipment, reduction of paper usage, and investment in green initiatives.
• Control Effectiveness: Moderate.
• Potential Financial Impact: Moderate, The company has implemented targets to be net zero by 2070.

Long-Term Strategic Goals and Progress #

• The company aims to be a leading player in the Indian asset management business and expand its global footprint. The reported 47.1% YoY growth in QAAUM for its mutual fund business, exceeding the industry average, demonstrates progress toward this goal.
• The company focuses on expanding its AIF and Offshore businesses. These have seen growth of 39% and 52% YoY in AUM, respectively.
• A core element of the company’s long-term vision is to increase the share of mutual funds within household financial savings in India. The growth of retail investors and assets in NAM India’s portfolios shows good progress.
• NAM India launched NAM India (IFSC Branch) to expand to cater to international business.

Competitive Advantages and Market Positioning #

• NAM India holds the largest unique investor base in the Indian mutual fund industry (1.65 crore), representing 1 in 3 unique investors.
• The company has demonstrated a superior market share increase of 73 bps in FY24, the highest among all AMCs.
• NAM India is the fastest-growing AMC among the top 10, despite lacking a parent banking partner.
• The company holds a leadership position in B-30 locations, with an AUM of ₹86,204 crore, representing 19.5% of its total MF AUM.
• NAM India is a market leader in the ETF segment, with a volume market share exceeding 60% on exchanges.
• The company’s de-risked distribution model, with the highest single distributor concentration at only ~5% of AUM, positions it well against competitors.

Innovation Initiatives and R&D Effectiveness #

• NAM India emphasizes digital initiatives, with a “mobile-first” strategy and platforms like the Nippon India MF Mobile App and WhatsApp channels.
• Digital transactions have doubled in FY24, and digital channels contribute 60% to total NIMF purchases and new SIP registrations, demonstrating the effectiveness of these initiatives.
• DigiLocker KYC integration.

Management’s Track Record in Execution #

• FY24 financial performance was strong, with record operating profit (₹958 crore, up 26% YoY) and profit after tax (₹1,107 crore, up 53% YoY).
• Consistent growth in key metrics (AUM, SIP book, unique investors, folios) demonstrates management’s ability to execute on strategic goals.
• Dividend payout was 99% exceeding stated policy.
• The company won the Kincentric Best Employer Award for 2023.

Capital Allocation Strategy #

• NAM India’s dividend policy is to distribute 60%-90% of profits, but in FY24, it distributed 99%, indicating a shareholder-friendly approach.
• The company is looking for opportunities.
• The utilization of IPO proceeds included investments to increase its branch network, upgrading IT systems, and investing in marketing.
• The company is strategically investing in the expansion of physical distribution as well as digital channels.

Organizational Changes and Their Impact #

• Key personnel changes include the appointment of an Interim Chief Financial Officer and changes in leadership within specific business units (e.g., Head - ETF).
• The company emphasizes diversity and inclusion, increasing women employees from 16% four years ago to 20%

Environmental Metrics and Targets #

• NAM India aims for a 45% reduction in overall Net CO2 emissions by 2030 and a 70% reduction by 2050, with a target of achieving Net Zero by 2070 (FY 2019-20 as the base year).
• FY24 saw 9,146.05 GJ of total energy consumed, up from 8,659.82 GJ in FY23.
• Energy intensity per rupee of turnover was 6.01 GJ/₹ Crore in FY24, down from 6.88 GJ/₹ Crore in FY23.
• Total water withdrawal for FY24 was 485.5 kiloliters, decreased from 545.2 kiloliters in the previous year.
• Water intensity per rupee of turnover was 0.3191 Kl/₹ Crore for FY24.
• NAM India generated 4.95 metric tons of waste during FY24.
• The Company has implemented energy-efficient equipment and policies, including LED lights, 5-star rated air conditioners.

Social Responsibility Programs #

• NAM India’s CSR spending for FY24 was ₹16 Crore, with ₹4.78 Crore transferred to an unspent account. The average net profit of the company for CSR was ₹782.84 Crore, and 2% of this, as per section 135(5), amounted to ₹15.66 Crore.
• CSR projects benefited 27,689 individuals, with a stated focus on healthcare, education, skill development, environment, sports, and rural development.
• Specific CSR initiatives include supporting eye surgeries, development of early intervention centers for children with disabilities, promoting climate-resilient agriculture, educational and digital literacy programs, and supporting sports development.
• NAM India has adopted 19 districts as part of SEBI’s adopt districts program.

Governance Structure and Effectiveness #

• The Board of Directors includes 5 Independent Directors out of a total of 9.
• Nine Board meetings were held during FY24.
• Board committees include Audit, CSR, Stakeholders Relationship, Nomination & Remuneration, Risk Management, IT Strategy, and Unit Holder Protection Committees.
• The Nomination & Remuneration Committee consists of seven members, with a majority being Independent Directors.
• The Company is fully compliant with mandatory corporate governance requirements.

Sustainability Investments and ROI #

• The document highlights investments in energy-efficient technologies but provides no specific figures on investment amounts or returns.
• Investments in digital infrastructure are mentioned as part of the operational strategy, but no specific ROI related directly to ESG initiatives.

ESG Ratings and Peer Comparison #

• NAM India is a signatory to the UN PRI.
• No specific external ESG ratings are included.
• The report claims market share increases across most asset categories, including those with ESG considerations (though specific ESG-linked products are not detailed).
• The Company states it is the only AMC to win the Kincentric Best Employer Award for 2023.

Regulatory Compliance and Future Preparations #

• The Company maintains a Compliance Manual reviewed by the Board of Directors.
• A Compliance Committee, chaired by the CEO & Executive Director, meets quarterly.
• The Company declares full compliance with applicable statutory provisions, Secretarial Standards, and Listing Regulations.
• There are no reports of penalties related to non-compliance with statutory authorities.

Future Projections and Guidance #

Management Guidance and Assumptions #

• Overall: Management assumes continued robust growth in the Indian economy (6.5%-7.0% in FY25) driven by government-led capex, potential private capex revival, and favorable macros.
• Mutual Fund Industry: A strong growth path is expected for the Mutual Fund industry, becoming the preferred avenue for retail investors.
• Digital Strategy: The digital strategy is built on a “build-operate-distribute” philosophy, focusing on user-friendly digital experiences.
• Dividend Policy: The stated dividend policy is to distribute 60%-90% of profits, subject to Board approval. In FY24, 99% of profits were distributed.
• ESG integration: Investment decisions align with broader societal and environmental goals.
• Risk Management: The Company highlight and manage potential conflict of interest, and abuse in related party transactions.

Market Growth Forecasts #

• Indian Economy: Projected to grow at 7%+ for the third consecutive year. FY25 growth is forecast at 6.5%-7.0%.
• Mutual Fund Sector: FY24 witnessed 34% AUM growth (to ₹ 54.1 Lakh Crore), the highest since FY17.
• Systematic Investment Plan (SIP): Monthly SIP flows reached 19300 cr in March 2024, and have grown 24% CAGR over the past seven years.
• Alternative Investment Funds: The investment commitments crossed over 40% YoY as of December 2023.

Planned Strategic Initiatives #

• AIF and Offshore Businesses: Continued focus on adding products and geographies to increase their revenue contribution.
• Digital Initiatives: Rollout of digital initiatives like WhatsApp and an investor portfolio log-in dashboard, strategic collaborations with digital partners.
• Physical Distribution: Strategic investment to expand distribution network and also to improve customer experience.
• B-30 Cities: Continued focus on smaller cities and towns to increase investor access and market penetration.
• Offshore Business: Making the segment a more significant portion of the overall revenue.
• CSR Initiatives: Continued CSR projects in healthcare, education, and rural development.
• Innovation: Continuous innovation in products, processes, and risk management.

Capital Expenditure Plans #

• FY24: Focus was on implementing cloud infrastructure for Data Lake, Analytics, and new core applications on the AWS cloud.
• IPO Proceeds Utilization: IPO funds are earmarked for branch network expansion, IT infrastructure, advertising, and brand building, with continued exploration of value-accretive strategic initiatives.

Efficiency Improvement Targets #

• Process Automation: Continued process automation across business departments (operations, digital, sales, finance) for efficiency gains.
• Digital Transactions: Increased digital transactions (6.6 million in FY24, up 2x over FY23). The aim is to increase the digital contribution to total purchase and new SIP registrations.
• Cloud Migration: Digital assets and financial accounting software moved to the cloud for cost optimization and availability.

Potential Challenges and Opportunities #

• Challenges:
  • Volatility in equity markets due to global macros, domestic demand, and corporate earnings.
  • Rising crude oil prices, potentially impacting external balances, fiscal situation, and inflation.
  • Maintaining strong scheme performance across all asset classes in a competitive environment.
• Opportunities:
  • Low mutual fund penetration in India offers a long growth runway.
  • Increasing financialization of savings, with a shift towards financial assets.
  • Growing retail participation and SIP inflows.
  • Potential for increased market share in the corporate segment.
  • Expansion of AIF and Offshore businesses.
• Financial and Regulatory: Policy rate easing may be more drawn out than initially anticipated.

Scenario Analysis and Sensitivity to Key Assumptions #

• SIP Inflows: Sustained and growing SIP inflows are viewed as a stable and mature segment.
• Market Share: Sustained market share increased throughout the year. Equity QAAUM also moved up to 4th in terms of total Equity AUM.
• Revenue and Profit: Record Operating Profit and PAT were driven by substantial growth in AUM, particularly in equity. The sensitivity of revenue and profit to changes in AUM, and management fees, is critical.
• Market Risk: Exposure to fluctuations in equity markets (NIFTY growth of 29% in FY24) and interest rates (10-Year G-Sec yield moderated by 26 bps).
• Operational risk: Associated with risks in new markets.

Inflation and Interest Rates #

• Scenario: Higher and persistent inflation, leading to delayed or shallower rate cuts.
• Sensitivity: Could negatively impact both equity and debt market valuations, potentially reducing AUM growth and management fees.

Economic Growth #

• Scenario: Slower-than-expected economic growth due to global uncertainties or domestic factors.
• Sensitivity: Could dampen investor sentiment and reduce inflows into mutual funds, affecting AUM growth and revenue.

Digital Initiatives Success #

• Scenario: Lower-than-expected adoption of digital platforms and partnerships.
• Sensitivity: Could limit the growth in digital transactions and new customer acquisition, impacting cost efficiency targets.

Competition #

• Scenario: Higher dependence on banking channels for most AMCs.
• Sensitivity: Single distributor concentration remains low, ensuring low risks.

Regulatory Risk #

• Scenario: SEBI issues on certain ETF scheme expenses.
• Sensitivity: Ongoing process to adhere to the regulations.

Audit and Compliance Analysis #

Auditor’s Opinion and Qualifications #

• Auditors, S.R. Batliboi & Co. LLP, issued an unmodified opinion on the standalone and consolidated financial statements.
• No instances of fraud were reported by the auditors under Section 143(12) of the Act.
• No qualifications or adverse remarks were made by the auditors in their reports.
• Company has used accounting software for maintaining it’s books of account, which has feature of recording audit trail (edit log) facility and the same has operated throughout the year for all relevent transcations recorded in the software, except audit trail feature is not enabled for direct changes to data, when using certain access rights.

Key Accounting Policies and Changes #

• The financial statements comply with Indian Accounting Standards (Ind AS) under Section 133 of the Companies Act, 2013.
• The historical cost convention is used, except for certain financial assets and liabilities, defined benefit plans, and equity-settled share-based payments, which are measured at fair value.
• Accounting policies have been consistently applied and the Ministry of Corporate Affairs notified Companies (Indian Accounting Standards) Amendment Rules, 2023 dated March 31, 2023 to amend certain Ind AS.

Internal Control Effectiveness #

• The auditor’s report includes an opinion on the adequacy and operating effectiveness of the Company’s internal financial controls over financial reporting.
• The Risk Management Committee, IT Strategy Committee, and other management-level committees supplement the Board’s functions in enhancing internal controls. *The Company has an Internal Control System which is commensurate with the size, scale and complexity of its business operations.
• The Internal Audit department monitors and evaluates the efficacy and adequacy of the internal control system in the Company, its compliance with operating systems, accounting procedures and policies.

Regulatory Compliance Status #

• The Company is fully compliant with the mandatory corporate governance requirements of the Listing Regulations.
• The Company has complied with applicable Secretarial Standards.
• There were no penalties or strictures imposed by stock exchanges, SEBI, or other statutory authorities on capital market-related matters in the last three years.
• SEBI issued a show cause notice in March 2024 regarding the charging of certain ETF & FOF scheme expenses, to which the Company has responded.

Legal Proceedings and Their Potential Impact #

• The Company is involved in Insolvency and Bankruptcy Code (IBC) proceedings related to investments in debt instruments.
• The company hasn’t disclosed any pending cases relating to title of shares to which Company is a party.

Related Party Transactions #

• All related party transactions during the financial year were on an arm’s length basis and in the ordinary course of business.
• There were no materially significant related party transactions with potential conflicts of interest.
• Transactions were reviewed and approved by the Audit Committee, with omnibus approvals for repetitive transactions.
• Specific disclosures of related party transactions are provided in Note 28 to the financial statements.

Subsequent Events #

• The Board of Directors proposed a final dividend of ₹11.00 per equity share for FY 2023-24, subject to shareholder approval at the AGM.

Analysis of Accounting Quality and Regulatory Risk Assessment #

• Accounting Quality: The accounting quality is considered high, supported by the unmodified audit opinion, consistent application of Ind AS, and detailed disclosures.
• Regulatory Risk Assessment: The primary regulatory risk identified is the ongoing SEBI show cause notice. Compliance with SEBI regulations is a continuous risk area.