HDFC AMC managing director Milind Barve (left) and HDFC Group chairman Deepak Parekh (right) during the asset management company’s IPO roadshow in Mumbai. (Source: HDFC AMC)

HDFC AMC’s Initial Public Offering: Here’s All You Need To Know

HDFC Asset Management Company Ltd. will launch its three-day initial public offering today as HDFC Ltd. and Standard Life look to sell stake in their joint venture.

The country’s second-largest asset manager is looking to raise about Rs 2,800 crore by selling a little over 2.5 crore equity shares at Rs 1,095-1,100 apiece. At the upper end of the price band, the company will be valued close to Rs 23,319 crore.

HDFC holds 57.36 percent stake in the asset management arm, while Standard Life owns 38.24 percent. They will gain 56-73 times their investment in the company. Standard Life had first invested in 2003.

Also read: Deepak Parekh Says Open To Looking For Talent Outside For Succession At HDFC Group

Business

HDFC AMC is the country’s largest equity-oriented asset management company. More than 97 percent of the total assets under management are in mutual funds, while the rest are under other managed accounts. As on June 30, its assets under management stood at Rs 3,07,585 crore.

It has 209 branches and 65,000 distribution partners in over 200 cities. The company manages 27 equity-oriented, 98 debt, three liquid and five other schemes.

HDFC AMC—the most profitable asset management company in India—has seen a steady rise in the number of customers and the average transaction size.

HDFC AMC’s Initial Public Offering: Here’s All You Need To Know

Also read: Parekh Says Enough Left On The Table For HDFC AMC Investors To Make Returns

Financials

  • The company’s net worth stood at Rs 2,160 crore for the year ended March, which translated into a book value per share of Rs 102.
  • Its asset under management during the period grew at an annualised rate of 27.5 percent.
  • HDFC AMC’s revenue clocked a compounded annual growth rate of 19.7 percent and net profit rose at 19.2 percent over the last five financial years.
  • The company has been paying dividend on a regular basis for the last five years.

Peers

Reliance Nippon Life Asset Management Ltd. is the only direct listed peer of HDFC AMC. But it has 40 active unlisted asset management peers—both private and public. ICICI Prudential Asset Management Company Ltd. is the largest AMC in India. Reliance Nippon is the fourth largest.

HDFC AMC’s growth rates were better than its listed peer’s, but lagged ICICI Prudential AMC’s.

The company’s net profit as a percentage of assets under management was the highest at 0.24 percent on higher revenue and lower expenses. All the three unit metrics—revenue, net profit and total expenses as a percentage of assets under management—declined for the financial year through March 2018.

HDFC AMC’s return on equity and return on asset were better than that of its listed peer but fell short of ICICI Prudential AMC’s. The company’s return on equity declined to 33.4 percent over last year, according to BloombergQuint’s calculations.

Also read: Deepak Parekh Says Succession Planning Imminent At HDFC Companies

Valuations

Earnings per share for the previous financial year stood at Rs 34. At the upper end of the price band, the price-to-earnings multiple is at 32.3, according to BloombergQuint’s calculations.

The company’s market capitalisation as a percentage of assets under management is expensive compared with that of Reliance Nippon.

Analysts’ View

Angel Broking

  • Huge growth potential of mutual fund industry.
  • Strong return ratios, asset light business and higher dividend payout ratio.
  • Has a track record of superior investment performance.

MOSL

  • Favorable perception of HDFC AMC’s brand and higher mix of high-margin equity-oriented asset under management.
  • Premium valuations justified given strong parentage, consistent market leadership and superior growth.

Choice Broking

  • Higher valuation is justified on higher concentration of equity assets in assets under management, most profitable AMC tag and the brand name associated.

Also read: SEBI Directs HDFC AMC To Scrap Pre-IPO Share Sale To Distributors