Buy SBI Funds Management; target of Rs 590: Motilal Oswal

What happened

Motilal Oswal reiterated a BUY rating on SBI Funds Management with a target price of Rs 590. Operating revenue grew 9% year over year to about INR11.9b, while total operating expenses rose 22% year over year to INR2.8b.

Confirmed

Global impact / market context

Expenses jumped 22% while revenue grew 9%, so profit per sale narrowed, meaning less of each rupee of revenue becomes profit. That squeeze helps explain why the analyst kept estimates broadly unchanged and set the target on 38 times estimated core earnings.

Analyst inference

The report frames this as an in-line quarter because revenue and EBITDA met expectations, so the analyst saw no reason to change forecasts. The key tension is cost growth outpacing revenue, which explains why the target rests on future earnings rather than current profit growth.

Analyst inference

What to watch

1. Watch whether operating expenses keep rising 22% year over year, since that pace outran revenue growth of 9% and pulled the EBITDA margin down to 76.5% from 79.1% a year earlier. Confirmed
2. Motilal Oswal broadly kept its estimates intact after the in-line quarter, so watch for any later revision to those forecasts or to the BUY rating and Rs 590 target price. Proposed
3. Watch revenue yield, which is revenue as a share of assets managed and was 36.4bp, because a falling yield alongside rising costs would further squeeze profit per sale. Analyst inference

Evidence

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