On April 14, 2021, the board of Aditya Birla Capital gave the green light to float the IPO of its mutual fund business. Aditya Birla Sun Life Asset Management Company (ABSLAMC), Aditya Birla Mutual Fund in routine parlance, will be the fourth AMC to go public after HDFC AMC, Nippon Life India AMC and UTI AMC.
ABSLAMC is a joint venture between Aditya Birla Capital and Sun Life (India) AMC Investments, in which Aditya Birla Capital holds 51% stake. For the IPO (Initial Public Offering), Aditya Birla Capital is likely to offer only about 28.5 lakh shares, whereas, Sun Life India intends to offload 3.6 crore shares. The total capital base of ABSLAMC is 28.8 crore shares of Rs 5 each.
The Indian mutual fund industry comprises 43 AMCs of which the top-5 AMCs command 57% of market share and the top-10 account for 83% of the Industry’s AUM.
Average AUM data for Q4FY21 considered
It has immense growth potential since there are only 9.8 crore accounts (folios) under its management at present. However, the pace of growth has been breathtaking in recent times. Over the last 10 years, India’s mutual fund industry has expanded five-fold. Between March 31, 2011 and March 31, 2021; the Industry’s AUM (Asset under Management) has grown from Rs 5.92 lakh crore to Rs 32.17 lakh crore. Growing awareness amongst investors about financial planning and mutual fund investing bodes well for the industry’s future.
The thumb rule is to value an AMC at 1.5-2 times its AUM. The valuations, however, must also take into account growth and profitability, besides AUM. India being a growth market, AMCs enjoy premium valuations.
Average AUM data for Q4FY21 considered
Market cap Data as on April 15, 2021
(Source: AMFI, BSE)
HDFC AMC is the most expensive AMC in India and its profitability matrix is much better than that of its listed peers. It mainly focuses on big towns with the top-5 cities accounting for 69% of AUM. The contribution of B-30 towns (Beyond-top 30 cities) is just 14%, which is lower than the industry average of 16%.
It’s noteworthy that HDFC Mutual Fund derives 48% of its business through the direct route but only 19% of equity assets come directly, i.e. bypassing other channels. This goes to show, other distribution channels such as banks, Independent Financial Advisors (IFAs) and national level distributors still play a crucial role in growing equity AUM of mutual funds.
Historically, UTI has lost its market share and is not seen amongst the players that are expanding aggressively. It garners only 31% of its AUM through the direct route. UTI Mutual Fund has empanelled ~52,000 mutual fund distributors, the lowest amongst listed players. Nearly 24% of its business comes from smaller towns where per account ticket size is often low, despite high growth potential.
ABSLAMC, on the other hand, has been consistently growing its equity AUM, expanding its distribution network and growing its digital reach.
(Source: Company records)
In FY20, the AUM of ABSLAMC was Rs 2.67 lakh crore and it had reported a PAT of Rs 494 crore, which was 0.19% of its AUM. Various matrices, such as PAT to AUM ratio, contribution of equity assets in total assets, distribution strength and retail focus, suggest that it is likely to get valuations similar to those of Nippon Life India AMC.
At 9% of its AUM, ABSLAMC could be valued at ~Rs 24,200 crore and Rs ~26,900, at 10%. Assuming that the company won’t issue any fresh shares and its paid-up equity capital is going to remain 28.8 crore shares of Rs 5 each, the IPO price could be in the range of Rs 840 to Rs 930.
India has a long way to go before the mutual fund industry reaches a point of saturation. Product strategies, technological advancements and cost rationalizations might guide the future trends in market share and profitability of AMCs.
Disclaimer: The blog is for information purposes only and anything mentioned herein shouldn’t be construed as a fundamental reason to buy/hold/sell any stock. Furthermore, the information provided in the blog and observations made therefrom shouldn’t be treated as the extension of recommendations made, or those will be made in future, on the other properties of Ventura Securities.
Estimates pertaining to the valuations of ABSLAMC shouldn’t be construed as the indicative, potential or true value of the AMC at present or at the time of it going public. It is merely an attempt of giving readers a scale, based on the established valuation metrics, to measure the attractiveness of the IPO as an when it is floated.
We strongly suggest you to consult your financial advisor before taking any decision pertaining to your finances.
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We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:
We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company. We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.