Q1'25 Spotlight (Indian Wealth Management) - 10 Top performing stocks that are undervalued

Top 10 Undervalued Wealth Management Stocks based on Q1'25 results are HDFC AMC, Motilal Oswal Fin, Nippon Life, 360One, Authum Invest, Nuvama Wealth, UTI AMC and 3 more.

Oct 12, 2024

Disclaimer - We are not SEBI registered !! Nothing that you will read below is investment advice. We are sharing “High Performing stocks that are Undervalued” based on Q1’25 performance in Wealth Management Sector with you, for you to do deeper research.

Wealth Management Custom Index Returns as compared to NIFTY

If we see returns for the last 2 years, our Wealth management custom index started outperforming NIFTY since July 23 and since Sept 22 has given returns of 167% vs NIFTY 55%

What is happening fundamentally in Wealth Management Sector in Q1 25 i.e. from April 24 to June 24

When multiple companies in a sector show Increase in Sales and OPM in a quarter… it usually indicates that there are strong tailwinds in the sector. This generally results in multiple companies in that sector out performing Fundamentally and Price wise.

For Wealth Management Sector

12 Companies grew their Sales by 28% and Operating Profit Margins by 16% Quarter on Quarter in Q1 25 i.e. compared with Q4 2024
16 Companies grew their Sales by 56% and Operating Profit Margins by 6% Year on Year i.e. compared with Q1 2024

Also you will notice that for most of the companies mentioned below (The 10 Best performing Wealth Management stocks that are undervalued) -

3 Profit metrics
1. Gross Profit Margin per quarter
2. Operating Profit Margin per quarter
3. Net Profit Margin per quarter
4. Started improving around Q3 2023 i.e. from Aug 22 to Sept 22
Revenues started to scale up massively from July 23
Prices of these companies bottomed out in March 23 and since then have been on a tear, outperforming NIFTY since July 23

The reasons for the above fundamental outperformance (sector Tailwinds) are -

Robust AUM Growth: The industry is witnessing strong growth in Assets Under Management, with most players reporting double-digit year-over-year increases, driven by both market performance and net inflows.
Rising Retail Participation: There's a significant increase in retail investor participation, evidenced by growth in SIP inflows and new demat account openings, indicating a broader base of investors entering the market.
Shift to Financial Assets: Indian households are gradually shifting from traditional assets like real estate and gold to financial assets, creating a long-term structural growth opportunity for wealth management firms.
Digital Transformation: Companies are heavily investing in digital platforms and technologies, enhancing customer experience and expanding reach, particularly in Tier 2 and Tier 3 cities.
Product Diversification: Firms are expanding their product offerings beyond traditional mutual funds, venturing into areas like AIFs, PMS, and offshore investments to cater to evolving client needs.
Regulatory Support: Favorable regulatory environment and initiatives aimed at increasing financial inclusion and literacy are supporting industry growth.
Increasing HNI/UHNI Segment: The growing number of High Net Worth and Ultra High Net Worth Individuals in India is creating a lucrative market for personalized wealth management services.

Check out the last section of the newsletter to see which sectors will we cover next…

10 Undervalued Wealth Management Stocks that were the Best Performers listed by Decreasing Market Cap

HDFC AMC - Market Cap 94,000+ Cr

Price Action - Since Oct 22, HDFC AMC - 138%, NIFTY 55%
Operational metrics performance - Below chart shows Gross, Operating and Net Profit Margin improving quarterly since July 2022 but revenue scaling up from July 2023
1. Q1 25 results (QoQ Increase) - Sales increased by 11% and Profits decreased by 1%
2. Q1 25 results (YoY increase) - Sales increased by 35% and Profits increased by 3%
Valuations and EPS - Below chart shows Price has grown faster than TTM EPS (EPS of last 4 quarters) from April 2023 to Jan 2024 and from Jan 2024 both have grown at the same pace leading to PE stablizing at 45
1. PE consistent at 45 i.e. above historical average
2. TTM EPS (EPS of Last 4 quarters) - Growing consistently QoQ since April 2023
What led to outperformance
1. AUM Growth
  1. i. Total AUM surpassed INR 7 trillion, with equity-oriented assets increasing to 64.3% of total AUM
2. Market Share Gains
  1. Overall market share increased 24 bps QoQ and 93 bps YoY to 8.20%
3. Revenue Growth
  1. Revenue from operations increased by 35% YoY to INR 7,752 million, while operating profit grew by 40% YoY
4. Client Acquisition
  1. Unique investor count reached 10.7 million, with 23% penetration in unique investor base
5. Systematic Investments
  1. Systematic transactions for June 2024 stood at INR 32.1 billion, showing strong recurring inflows
6. Product Portfolio
  1. Total number of products increased to 100, up from 43 in March 2021, expanding offerings across active and passive strategies
7. Distribution Channels
  1. Strengthening relationship with HDFC Bank, capturing 30% of their mutual fund book, and growing presence in fintech channels
8. Cost Management
  1. Maintaining cost discipline while investing in growth opportunities, with controlled expense growth of 12-15% annually

Motilal Oswal Financial Services Ltd- Market Cap 48,351 Cr

Price Action - Since Oct 22, Motilal Oswal- 331%, NIFTY 44%
Operational metrics performance - Below chart shows Gross, Operating and Net Profit Margin improving quarterly since July 2022 but revenue scaling up from July 2023
1. Q1 25 results (QoQ Increase) - Sales increased by 7% and Profits increased by 34%
2. Q1 25 results (YoY increase) - Sales increased by 54% and Profits increased by 8%
Valuations and EPS - Below chart shows TTM EPS has increased massively and Price has grown almost at the same rate. In the last few months price increase has been faster than EPS leading to EPS stabilising at 17.
1. PE consistent at 17 i.e. above historical average
2. TTM EPS (EPS of Last 4 quarters) - Growing consistently QoQ since July 2023
What led to outperformance
1. AUM Growth
  1. Total Assets under Advice (AUA) crossed Rs. 5 lakh crores, with Wealth Management AUA growing 105% YoY to Rs. 265,000 crore
2. Market Share Gains
  1. Cash market share increased by 186 basis points YoY to 8.0%, and Futures & Options premium market share grew by 225 basis points YoY to 9.5%
3. Revenue Growth
  1. Consolidated operating net revenue up 32% YoY to Rs. 1,133 crore, with consolidated profit after tax growing 52% YoY
4. Client Acquisition
  1. Acquired around 150,000 new clients in Q1, with coverage expanding to 2,500+ business locations encompassing 98% of India's PIN codes
5. Systematic Investments
  1. SIP AUM stood at Rs. 14,606 crore, with 5.7 lakh new SIPs added in Q1FY25 and SIP flows of Rs. 1,198 crore for the quarter
6. Product Portfolio
  1. Expanded offerings with new products in asset management, including growth in AIF AUM crossing Rs. 12,000 crore mark
7. Distribution Channels
  1. Robust network of 2,000 internal relationship managers and over 8,800 external wealth managers, with Private Wealth RM count growing 37% YoY to 576

Nippon Life India Asset Management - Market Cap 41,000+ Cr

Price Action - Since Oct 22, NAM - 147%, NIFTY 55%
Operational metrics performance - Below chart shows Gross, Operating and Net Profit Margin improving quarterly since July 2022 but revenue scaling up massively from July 2023
1. Q1 25 results (QoQ Increase) - Sales increased by 8% and Profits decreased by 1%
2. Q1 25 results (YoY increase) - Sales increased by 43% and Profits increased by 10%
Valuations and EPS - Below chart shows Price has grown faster than TTM EPS (EPS of last 4 quarters) from April 2023 to Jan 2024 and from Jan 2024 both have grown at the same pace leading to PE stablizing at 35
1. PE consistent at 35 i.e. around historical average
2. TTM EPS (EPS of Last 4 quarters) - Growing consistently QoQ since April 2023
What led to outperformance
1. AUM Growth
  1. Mutual Fund QAAUM grew 12% QoQ & 54% YoY to reach INR 4.84 trillion
2. Market Share Gains
  1. Overall market share increased 24 bps QoQ and 93 bps YoY to 8.20%, with increases across all asset categories
3. Revenue Growth
  1. Revenue stood at INR 5.05 bn, up 43% YoY and 8% QoQ
4. Client Acquisition
  1. Largest base in the Mutual Fund industry with 17.5 mn unique investors, over 1 in 3 mutual fund investors
5. Systematic Investments
  1. Monthly systematic book rose by 11% QoQ to INR 25.8 bn for June 2024
6. Product Portfolio
  1. Passive AUM, including ETFs and Index Funds, crossed INR 1.5 trillion
7. Distribution Channels
  1. Digital purchase transactions rose to 2.82 million in Q1 FY25, up 170% YoY
8. Cost Management
  1. Maintaining cost discipline while investing in growth opportunities, with controlled expense growth of 12-13% annually

360One - Market cap 34,000 Cr+

Price Action - Since Oct 22, 360One - 118%, NIFTY 47%

Operational metrics performance - Below chart shows Operating and Net Profit Margin improving quarterly since July 2022 but revenue scaling up massively from July 2023
1. Q1 25 results (QoQ Increase) - Sales increased by 7% and Profits increased by 8%
2. Q1 25 results (YoY increase) - Sales increased by 48% and Profits increased by 10%
Valuations and EPS - Below chart shows Price has grown faster than TTM EPS (EPS of last 4 quarters) from April 2023 and is currently at 40 higher than historical average
1. PE at 40 i.e. above historical average
2. TTM EPS (EPS of Last 4 quarters) - Growing consistently QoQ since April 2023
What led to outperformance
1. AUM Growth
  1. Total ARR AUM increased to Rs 2,21,287 Crs, up 34% YoY, with strong growth across Wealth and Asset Management segments
2. Revenue Growth
  1. Total Revenues up 60.6% YoY at Rs 697 Crs, driven by ARR growth and strong transactional income
3. Cost Management
  1. Total Costs up 25.9% YoY to Rs 265 Crs, growing at a slower pace than revenue
4. Improved Efficiency
  1. Cost-to-income ratio declined to 38% from 48.2% in Q4 FY24, leading to 71.8% YoY growth in operating profit
5. Client Acquisition
  1. Onboarded 150+ new clients with Rs 10 Crs+ ARR AUM, expanding total client base to 7,400+
6. Net Flows
  1. Strong overall net flows of Rs 5,549 Crs, with significant contributions from both Wealth and Asset Management
7. Retention and Yields
  1. Overall ARR retentions remained strong at 72 basis points, indicating client stickiness and pricing power
8. Diversified Revenue Streams
  1. Focus on increasing ARR revenue share while capitalizing on transactional opportunities in private markets

Authum Investment and Infra - Market cap 30,000 Cr+

Price Action - Since Oct 22, Authum - 591%, NIFTY 46%
Operational metrics performance - Below chart shows massive increase in Revenue, Operating and Net Profit Margin from Oct 2023 but it is not stable margins came down in latest quarter
1. Q1 25 results (QoQ Increase) - Sales increased by 60% and Profits remained the same
2. Q1 25 results (YoY increase) - Sales increased by 2300% and Profits decreased by 6%
Valuations and EPS - Below chart shows TTM EPS (EPS of last 4 quarters) has grown much faster than price leading to a PE derating and current PE being 7.2. This is good thing only if this growth in EPS sustains.
1. PE derated to 7.2 i.e. below historical average
2. TTM EPS (EPS of Last 4 quarters) - Growing massively QoQ since Dec 2023
What led to outperformance - No concalls published

Price Action - Recently IPOed… Since Oct 23, Authum - 120%, NIFTY 26%
Operational metrics performance - Below chart shows Revenue, Operating and Net Profit Margin consistently increasing from July 2022
1. Q1 25 results (QoQ Increase) - Sales increased by 2% and Profits increased by 31%
2. Q1 25 results (YoY increase) - Sales increased by 47% and Profits increased by 16%
Valuations and EPS - Below chart shows TTM EPS (EPS of last 4 quarters) has grown much faster than price leading to PE being around 29 which is the long term average.
1. PE at 29 i.e. around historical average
2. TTM EPS (EPS of Last 4 quarters) - Massive growth in July quarter
What led to outperformance
1. AUM Growth
  1. Total client assets grew 50% YoY to INR 3,89,000 crores
2. Market Share Gains
  1. Increased market share in institutional equities and investment banking segments
3. Revenue Growth
  1. Total revenue up 60% YoY to INR 668 crores
4. Client Acquisition
  1. Added 200 families in Nuvama Private, taking total count to 3,900 families
5. Systematic Investments
  1. Garnered INR 1,400 crores in net new money in MPIS, 11% higher than FY24 quarterly average
6. Product Portfolio
  1. Expanded offerings in asset management with new products like commercial real estate and private equity funds
7. Distribution Channels
  1. Added about 350 Relationship Managers over last 12 months, including 60+ in Q1
8. Cost Management
  1. Cost-to-income ratio improved from 68% in Q4 to 66% in Q1, despite significant RM additions

UTI AMC - Market cap 15,000 Cr+

Price Action - Since Oct 2022 UTI AMC - 65%, NIFTY 43%
Operational metrics performance - Below chart shows Revenue, Operating and Net Profit Margin consistently increasing from Jan 2023
1. Q1 25 results (QoQ Increase) - Sales increased by 27% and Profits increased by 37%
2. Q1 25 results (YoY increase) - Sales increased by 13% and Profits increased by 4%
Valuations and EPS - Below chart shows TTM EPS (EPS of last 4 quarters) has grown much faster than price from May 23 to May 24 leading to PE bottoming around 16. Post May 24 Price has started move at a faster pace leading to PE increasing to long term average of 20
1. PE at 20 i.e. around historical average
2. TTM EPS (EPS of Last 4 quarters) - Consistent growth since May 2023
What led to outperformance
1. AUM Growth
  1. Total AUM grew 20% YoY to ₹19,36,107 crore, including strong growth in MF QAAUM and other business segments
2. Market Share Gains
  1. Overall MF QAAUM market share increased to 5.27% in Q1 FY25 from 5.76% in Q1 FY24, with notable improvement in passive funds
3. Revenue Growth
  1. Total revenue from operations up 13% YoY to ₹529 crore, with core revenue (sale of services) growing faster at 19% YoY
4. Client Acquisition
  1. Total live folios stood at 1.25 crore as of 30th June 2024, supported by ~69,390 empaneled distribution partners
5. Systematic Investments
  1. SIP AUM increased 44.84% YoY to ₹36,095 crore, with monthly SIP book rising 11% QoQ to ₹25.8 billion for June 2024
6. Product Portfolio
  1. Expanded offerings with new products in asset management, including commercial real estate and private equity funds
7. Distribution Channels
  1. Digital purchase transactions rose 33.19% YoY to 37.84 lakh, complemented by presence across 698 districts in India
8. Cost Management
  1. Operating profit margin improved from 14 bps to 16 bps of AAUM YoY, with core PAT growing 39% YoY, outpacing revenue growth

DOLAT ALGOTECH LTD - Market cap 2,314 Cr+

Price Action - Since Oct 2022 Dolat Algotech - 85%, NIFTY 47%
Operational metrics performance - Below chart shows Revenue, Operating and Net Profit Margin consistently increasing from July 2023
1. Q1 25 results (QoQ Increase) - Sales increased by 5% and Profits increased by 13%
2. Q1 25 results (YoY increase) - Sales increased by 344% and Profits increased by 31%
Valuations and EPS - Below chart shows TTM EPS (EPS of last 4 quarters) has increased massively since Nov 2023 and price has also grown at the same pace leading to PE stablising at 10.
1. PE at 10 i.e. around historical average
2. TTM EPS (EPS of Last 4 quarters) - Consistent growth since Nov 2023
What led to outperformance
1. No con-call available

5Paisa Capital Ltd- Market cap 1,643 Cr+

Price Action - Since Oct 2022 5Paisa - 50%, NIFTY 41%
Operational metrics performance - Below chart shows Operating and Net Profit Margin consistently increasing from Jan 2022 while there is a consistent revenue increase from Jun 2023.
1. Q1 25 results (QoQ Increase) - Sales decreased by 9% and Profits increased by 43%
2. Q1 25 results (YoY increase) - Sales increased by 21% and Profits increased by 20%
Valuations and EPS - Below chart shows TTM EPS (EPS of last 4 quarters) consistently increasing from July 2022 to Nov 2023 and then dipping a bit. The price did not move as fast as the EPS growth leading to PE derating to 30
1. PE at 30 i.e. below historical average
2. TTM EPS (EPS of Last 4 quarters) - Consistent growth since July 2022 till Nov 2023 and then dips a bit
What led to outperformance
1. AUM Growth
  1. Mutual fund AUM reached ₹1,124 crore, a 90% growth YoY
2. Market Share
  1. Overall market share stood between 2% - 2.5% for both cash and F&O segments
3. Revenue Growth
  1. Total revenue up 21% YoY to ₹102 crore, with broking revenue growing 11% YoY to ₹40 crore
4. Client Acquisition
  1. Total customer base reached 44.7 lakhs, with 2.34 lakh new customers acquired in Q1, reflecting 116% growth YoY
5. Trading Volumes
  1. i. Average Daily Turnover (ADTO) grew to ₹3.67 trillion, a growth of 27% YoY
6. Product Portfolio
  1. Enhanced features for option traders, including straddle chains and bulk order placement. Introduced new FnO 360 product for derivatives trading
7. Technology Improvements
  1. Revamped mobile app for iOS and Android to be available by end of Q2 FY'25 . Trade Station 2.0, a revamped web platform, now accessible to all users
8. Financial Performance
  1. Achieved highest ever PAT of ₹20.1 crore, a growth of 248% QoQ and 39% YoY. PAT margins improved to 20%

Wealth First Ltd- Market cap 1,410 Cr+

Price Action - Since Oct 2022 Wealth First - 404%, NIFTY 47%
Operational metrics performance - Below chart shows Revenue, Operating and Net Profit Margin consistently increasing from Jan 2023
1. Q1 25 results (QoQ Increase) - Sales increased by 44% and Profits increased by 34%
2. Q1 25 results (YoY increase) - Sales increased by 82% and Profits increased by 13%
Valuations and EPS - Below chart shows TTM EPS (EPS of last 4 quarters) increasing consistently since April 2023. For the first few quarters price grew at the same pace as TTM EPS but in the last quarter grew faster than TTM EPS leading to PE stablising at 30
1. PE at 30 i.e. above historical average
2. TTM EPS (EPS of Last 4 quarters) - Consistent growth since April 2023

What led to outperformance
1. AUA Growth
  1. Total AUA grew 36% YoY to ₹11,417.8 crore, including strong growth in MF+PMS AUM and other business segments
2. ARR AUM Growth
  1. Assets under Recurring Revenue (ARR AUM) increased by 65% YoY to ₹5,448.3 crore
3. Revenue Growth
  1. Total revenue from operations up 55% YoY to ₹21.6 crore, with trail base revenue growing faster at 76% YoY to ₹11.2 crore
4. Client Acquisition
  1. Total client base increased to 19,887, which is a growth of 6% YoY
  2. Total client families increased by 9% YoY to 5,996
5. Systematic Investments
  1. Strong momentum in SIP inflows, with industry SIP inflow for the quarter ended June 2024 witnessing an inflow of ₹625 Bn, a growth of 45% YoY
6. Market Conditions
  1. Strong market recovery following the general elections, resulting in significant inflows into equity funds
7. Operational Efficiency
  1. Improved profitability with PAT jumping by 66% YoY to ₹14.0 crore ii. PAT margin improved from 60.5% in Q1 FY24 to 64.9% in Q1 FY25

The next 2 industries that we will be covering will be

Food processing Indian
Chemicals

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