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Last Updated : Nov 07, 2018 02:16 PM IST | Source:

Avendus Capital seeks deep valuation cut in IDFC MF: Report

An acquisition of IDFC's mutual fund business would help Avendus Capital deepen its presence in the asset management business as IDFC would offer it a ready platform.

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Financial services firm Avendus Capital is seeking a deep valuation cut in the mutual fund business of IDFC that is up for sale, according to Mint.

Avendus is looking for a valuation of less than Rs 2,000 crore, against IDFC's expectations of Rs 3,500-4,000 crore for the unit, three people aware of the development told the paper.

"There has been a delay in closure of the deal because of the mismatch in valuation expectations. Avendus has re-looked at the profitability and growth potential and is now willing to offer a valuation closer to Rs 2,000 crore," one of the three people mentioned above said.

Moneycontrol couldn't independently verify the report.

Avendus' demand comes after IDFC Mutual Fund reported a decline in profit, product offerings and an end of IDFC’s marketing support post-sale, the report said.

Also read: Exclusive | Avendus in last lap to acquire IDFC AMC

"In the absence of the banking channel that IDFC Bank offers, it will be a challenge for Avendus to grow the business. It is still going to be an expensive acquisition even at Rs 2,000 crore. Avendus, however, is pressing ahead to achieve a deal closure," one of the sources said.

The financial services firm is said to have factored in the impact of the recent rules on capping total expense ratio of MF schemes issued by regulator Securities and Exchange Board of India (SEBI).

In September 2018, SEBI had capped the expense ratio for open-ended equity schemes on the basis of their size. The larger the assets under management (AUM), the lower the expense ratio.

IDFC Mutual Fund, the 12th largest in India by size, managed Rs 69,574 crore assets as of June 30, 2018, up 4.7 percent from Rs 66,361 crore a year ago.

Besides AUM, the profitability of the business is a major factor to value a mutual fund business, a source told Mint.


Net profit of IDFC's asset management business as of March 31, 2018 stood at Rs 54 crore, down from Rs 97 crore a year ago, according to IDFC’s annual report.

As per norms, the valuation of AMCs is based on the amount of money managed in equity portfolios (as equity schemes earn much higher commissions). The higher the proportion of equity funds, the higher the percentage of AUM applicable to derive value of the asset management company.

As of September, IDFC's asset management unit had around 31 percent of its assets in equity schemes and about 19 percent of its assets in liquid schemes.

An acquisition of IDFC's mutual fund business would help Avendus Capital deepen its presence in the asset management business as IDFC would offer it a ready platform.

IDFC, however, has already started reaching out to other parties as the Avendus offer does not meet its expectations, the report said. IDFC AMC was established in 2008 after IDFC bought Standard Chartered Asset Management Company for Rs 820 crore.

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First Published on Nov 7, 2018 02:16 pm
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