Motilal Oswal has issued a BUY recommendation on UTI Asset Management Company (UTI AMC), projecting a 23% upside with a target price of Rs 1,250. The firm anticipates robust growth across AUM, revenue, and core PAT through FY27, despite short-term headwinds like declining yields and elevated operational costs. A stable SIP book, strategic expansion into tier-2/3 cities, and a growing digital footprint underscore UTI AMC’s resilience in a volatile market environment. While earnings for Q4FY25 missed estimates due to lower other income, the broader business outlook remains strong.

Strong FY25 Performance Amid Operational Hiccups

Revenue Grew Despite Market Volatility: UTI AMC posted a 22% YoY increase in FY25 operating revenue to Rs 14.5 billion. However, Q4FY25 revenue at Rs 3.6 billion reflected a 4% sequential decline, largely due to reduced yields from equity and liquid funds. Management fee yields stood at 42.4 basis points, down from 43.7bps YoY.

Profitability Dented by Cost Pressures: EBITDA for Q4 stood at Rs 1.5 billion—missing estimates by 10%. Total operating expenses increased by 12% QoQ to Rs 2.1 billion, mainly driven by a 28% YoY jump in other expenses. PAT fell 41% QoQ to Rs 1 billion, impacted by low other income and a higher tax outgo.

Fundamentals Anchored by SIP Stability and AUM Diversification

SIP Book Expansion Supports Core Stability: Gross SIP inflows in Q4FY25 touched Rs 22.2 billion, with SIP AUM climbing 22% YoY to Rs 375.9 billion. Live folios increased to 13.3 million. Digital SIP transactions rose 25%, indicating growing investor preference for online channels.

Asset Mix Trends Favor Passive Strategies: While equity QAAUM (Rs 3.4 trillion) grew 17% YoY, its mix within the portfolio declined to 27% (from 29% YoY). Passive and index funds saw significant traction. Liquid fund outflows of Rs 49 billion affected net inflows, which dropped to Rs 6.7 billion from Rs 102 billion in Q3FY25.

Strategic Initiatives Drive Long-Term Visibility

Tier-2/3 Expansion at Zero Incremental Cost: UTI AMC opened 68 new branches in FY25 without adding to fixed costs. This was achieved by reallocating staff and optimizing space. The company also led investor literacy efforts through 890+ education programs reaching over 72,000 participants.

Digital Engagement and Product Innovation: UTI became the first mutual fund in India to adopt Salesforce's automation suite for investor and distributor outreach. New launches included the UTI Quant Fund and multiple smart beta and thematic strategies, further strengthening its equity portfolio.

Valuation Metrics Reflect Compelling Risk-Reward

Attractive Multiples with Strong Dividend Yield: The stock trades at 14.4x FY26E earnings and offers a robust dividend yield of 4.8%. Core earnings per share (EPS) is projected to grow at a 17.8% CAGR over FY25–27.

Growth Beyond Mutual Funds

Non-MF AUM Expands Rapidly: Group AUM reached Rs 21.1 trillion in FY25. PMS and alternate segments grew 13–34% YoY. UTI Pension Fund crossed Rs 3.6 trillion AUM, maintaining a 24.86% market share.

Alternatives and Global Presence Gain Ground: The UTI India Innovation Fund and Indian Equity Fund, domiciled in Ireland, continued attracting global institutional clients. The firm operates from five international locations and is expanding regulatory licenses in the Middle East.

Risks and Mitigation

Yield Compression Pressure: With increasing ETF and index fund share, yields are expected to dilute by 1–2bps. However, commission rationalization and cost control measures are expected to balance the decline.

Other Income Volatility: Q4FY25 saw an 85% YoY decline in other income to Rs 158 million, primarily due to MTM losses and currency fluctuations. Management expects this to stabilize in coming quarters.

Investment Recommendation

BUY with Target of Rs 1,250: Despite near-term earnings volatility, Motilal Oswal remains confident in UTI AMC’s long-term trajectory, supported by a diversified AUM base, strong SIP momentum, digital leadership, and product innovation. At current levels, the stock offers a compelling value proposition for long-term investors with an upside potential of 23%.