Friday, July 20, 2018

IPO ANALYSIS: HDFC Asset Management Company Limited - Invest

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Issue Details :


Issue opens  / closes on
25-07 / 27-07-2018
Issue size
2.45 Cr equity shares
Face Value
Rs 5
Price band
Rs 1095-1100
Business
Mutual Fund
Promoters
HDFC
Listings
Bse, Nse
BRLM
Kotak Mahindra Capital, Axis Capital, DSP Merrill Lynch, Citigroup Global Markets India, CLSA India, HDFC Bank, ICICI Securities, IIFL Holdings, JM Financial Limited, J.P. Morgan India, Morgan Stanley India and Nomura Financial Advisory and Securities
Registrar
Karvy

BUSINESS:


HDFC AMC  is the second largest asset management company and it is a joint venture of mortgage lender Housing Development Finance Corp. Ltd (HDFC) and Standard Life Investments Ltd.


HDFC AMC offers a large suite of savings and investment products across asset classes, which provide income and wealth creation opportunities to the customers. As of March 31, 2018, the company has  133 schemes that were classified into 27 equity-oriented schemes, 98 debt schemes. This diversified product mix provides the flexibility to operate successfully across various market cycles, cater to a wide range of customers from individuals to institutions, address market fluctuations, reduce concentration risk in a particular asset class and work with diverse sets of distribution partners which helps us expand the reach. The company also provide portfolio management and segregated account services, including discretionary, non-discretionary and advisory services, to high net worth individuals. family offices, domestic corporates, trusts, provident funds and domestic and global institutions. A


As of March 31, 2018, the equity-oriented AUM and non-equity-oriented AUM constituted Rs 1,49,713 Cr and ₹1,42,273 Cr, respectively, of our total AUM. The AUM has grown at a compounded annual growth rate  of 25.5% between March 31, 2013 and March 31, 2018. The proportion of equity-oriented AUM to total AUM was at 51.3%, which was higher than the industry average of 43.2%, as of March 31, 2018, according to CRISIL.


Top AMCs in India: ( Asset Under Management in crores)


  1. ICICI Prudential Mutual Fund Rs 310561.
  2. HDFC Mutual Fund Rs 307082.
  3. Birla Sun Life Mutual Fund Rs 249507
  4. Reliance Mutual Fund Rs 241096
  5. SBI Mutual Fund Rs 233474.

OBJECTS OF THE OFFER :


The objects of the Offer are to achieve the benefits of listing the Equity Shares on the Stock Exchanges and to carry out the sale of Equity Shares offered for sale by the Promoter Selling Shareholders.


FINANCIALS :  ( Rs in Crores, except EPS)



March 2018
March 2017
March 2016
Revenues
1867
1588
1494
Equity
105.27
25.16
25.16
Net profit
722
550
478
EPS
35
27
24

RISKS:


  1. Adverse market fluctuations and/or adverse economic conditions could affect our business in many ways,including by reducing the value of AUM.
  2. Accelerated customer redemptions and withdrawals will affect profitability.
  3. Investment products underperform, the AUM could decline and adversely affect the revenues, reputation and brand.
  4. Failure to continue with our existing distribution relationships or to secure new distribution relationships may have a material adverse effect on the competitiveness.

QUALITATIVE FACTORS :


  1. Consistent market leadership position in the Indian mutual fund industry.  
  2. Trusted brand and strong parentage.
  3.  Strong investment performance supported by comprehensive investment philosophy and risk management.
  4.  Superior and diversified product mix distributed through a multi-channel distribution network  Focus on individual customers and customer centric approach.
  5. Experienced and stable management and investment teams.

VALUATION AND RECOMMENDATIONS :


The offer is made at 25 PE on its FY 19 earnings. The average industry PE is 26. HDFC AMC deserves a premium over its peers because of its pedigree. Promoter group will hold 83 % post offer. HDFC will hold 52.92 percent while Standard Life will hold 30.03 percent after selling shares.


According to CRISIL the industry’s AUM will grow from Rs 20.6 lac cr as of March 2018 to Rs 48.4lac cr by March 2023, clocking a robust CAGR of 19%. The mutual fund industry’s revenue is expected to grow at a CAGR of 25% to around Rs 184000 Cr by Fiscal 2019.


HDFC AMC is likely to maintain its CAGR in excess of 25%.


Invest for listing gains and as well for long term appreciation.

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