Bandhan Bank will add value to IDFC AMC's brand and help the mutual fund house in enhancing its presence in the retail segment, Karni S. Arha, Managing Director at the private lender's parent Bandhan Financial Holdings Limited (BFHL), told Moneycontrol in an interaction on April 8.
On April 7, a consortium of BFHL, Singapore’s sovereign wealth fund GIC, and ChrysCapital entered into an agreement to acquire IDFC Asset Management Company Limited (IDFC AMC) and IDFC AMC Trustee Company Limited from IDFC Limited, for a consideration of Rs 4,500 crore. This was the largest deal in the Indian asset management industry till date.
According to Arha, Bandhan Financial Holding's move to acquire IDFC AMC business in a consortium will likely provide Bandhan Group the diversification that it strives hard to achieve.
Also read: Bandhan Bank share price rises more than 3% on block deals
Edited excerpts:
Q- What were the valuation methodologies used for arriving at the final buying price of Rs 4,500 crore. Do you think the deal is fairly valued?
A- I think it is, absolutely. You must keep in mind that deal of this size is rare in the market. That is why there was an intense competition for it as well. Even if we look at some of the comparable, some of the listed asset management companies, their valuations are probably in the range of about 5 percent-10 percent of the average AUM (assets under management) whereas if you look at this deal it will probably be below 4 percent of the AUM size.
So, in some ways and shape and form, valuation is a tricky thing, but you have to believe in the asset and what you can do with it on a long-term value creation basis. We are very confident and happy about this particular target. JM Financial advised us on the buy side for this deal.
Q- What are your business targets for IDFC AMC in the near to medium term?
A- Bandhan as a Group is always focused on financial inclusion. The whole emphasis of Bandhan Group is that we want to make all financial services available to the market. That is how it resonates across the Group at all the levels and that is our intention with this particular target (IDFC AMC).
Even if you look at the last 10 years trendline, the industry has been growing between 15 percent-17 percent and it is likely to grow in same range for next 10 years. Clearly there is a huge potential for this particular industry to grow. What is critical in this industry is size and scale and that is why this kind of an asset is exciting opportunity.
Add to that the fact that this is a well-established, pedigreed vintage mutual fund house with pan-India presence, branches across the country and more importantly the management. I think the management is stellar. It is a highly respected management and we are looking forward to working with them to build this business for the future.
Q- What were the key value propositions that appealed you to go ahead with this deal?
A- The company’s size and scale is significant. This is one of the few companies that is not promoted by a bank and has a full bouquet of products. Further, it is extremely well established at least on the debt side and it has highly ranked fund management team and management per se as well.
If you put all these things together, then this is a very exciting opportunity. Plus, majority of the companies in this industry are profitable and this is also a fairly profitable company. We have partnered with some of the marquee investors and are very happy with the prospect of this deal.
Q- IDFC has been meaning to sell its AMC business for some time now. When did you hold the initial talks with partners and target company for this deal?
A- I think the two points that you raised have to be slightly de-linked. I do not want to speak about why IDFC is wanting to sell the company.
To give credit to the process, it was very professionally run. They launched the process somewhere around the end of December. Sell side advisors were Citibank. We had participated from day one.
Q- Any AUM growth targets that you can share?
A- For this fiscal it would be too narrow minded and too soon because the legal and regulatory approvals may take the entire year. What I can share with you is that we are definitely expecting to grow our market position in the next five years. We are currently ranked at number nine and we want to improve it.
Q- And what rank do you want to improve it to?
A- That number is for you to choose but the idea is that we are very confident that we can deliver and we can significantly improve our ranking.
Q- You have acquired the business in a consortium with other partners. What is the part that Bandhan will play in scaling of this company?
A- I think what we bring to the table is more of a marked brand or a retail brand from Bandhan side. It is a very established house and we will add value in terms of further uplifting and enhancing their brand in the retail segment.
Q- From microfinance to mutual funds, is Bandhan Bank consciously diversifying its portfolio by entering into different businesses?
A- The core of Bandhan is to be able to do financial inclusion and taking formal financial services to the market. That is the core DNA. Even if you take the total customer base of Bandhan Bank, other than the micro lending customer base which is roughly around 16-17 million, Bandhan Bank now has seven to eight million of normal customers. And the average banking balance of these normal customers are absolutely comparable to some of the other large private banks in the industry.
If you look at the potential, it is huge. Six to eight million of these customers and every year one million customers are being added so the bank is growing. It is only a question of how we leverage that. Demand of customers that are being onboarded also will be such that they need normal banking services but they will also need other services like asset management, insurance or others. This deal fits very well within Bandhan Group as it wants to diversify and be able to offer multiple products and this is the journey we are on.
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