Reliance Nippon Life AMC has witnessed slowdown in its profit after taxation (PAT) in FY 2019-20. The fund house has recorded PAT of Rs.413 crore in FY 2019-20 as against Rs.485 crore in FY 2018-19, a decline of 15% in its net profit.
An analysis of earnings growth shows that change in regulatory norms like reduction in TER and disbursal of commission from the scheme instead of AMC book have reduced the overall revenue of the fund house. The AMC recorded a decline of 19%. revenue to Rs.1203 crore in FY 2019-20 from Rs.1480 crore in FY 2018-19 from operations such as fund management fees from mutual funds, PMS and AIF business last fiscal.
Another key reason for the decline in profitability was the recent correction in the market. The company’s balance sheet shows that while the company has received income of Rs.274 crore from operations, the fund house recorded loss of Rs.125 crore from other income which includes income from various investments.
The company has invested Rs.2500 across various asset classes such as equity funds, debt funds, PMS, AIFs and bank FDs. Since most of the company’s assets has been invested in mutual funds (close to Rs.1700 including Rs.400 in equity funds), the company recorded loss of Rs.125 crore due to mark-to-market loss. As a result, the AMC has recorded PAT of just Rs.4 crore in January-March 2020 compared to Rs.152 crore January-March 2019.
Further, the regulatory change that banned upfront commission has cushioned the impact of mark-to-market loss for the fund house. Nippon Life AMC’s expenses incurred on distribution reduced from Rs.258 crore in FY 2019 to Rs.70 crore in FY 2020, 73% lower that it spent in FY 2018-19. A considerable part of this decline in fees and commission came in the March quarter, when it spent Rs.20 crore compared to Rs.63 crore in the same period of 2019 due to mark to market loss.
In a press statement, Sundeep Sikka, ED & CEO, Nippon Life India AMC India, said “Growth in AUM reflected the increased investor confidence in NIMF, both in the individual and corporate segments. Over the last sixth months, we saw a growth of 16% in operating profit driven by better investor stickiness, ability to preserve yields and cost efficiencies, despite turbulent equity markets and former legacy issues.”
