Aditya Birla Sun Life AMC, a joint venture between Aditya Birla Capital and Sun Life AMC set up in 1994, opened its maiden public offer on September 29.
At least 13 analysts and brokerage houses recommended subscribing to the issue, citing reasonable valuations, strong parentage and brand, scope for growth of mutual fund products, rising investment awareness, the AMC’s extensive distribution network and consistently high returns of over 30 percent.
Most analysts advised subscribing to the IPO for the long term as they expect limited listing gains.
The issue is an offer for sale of more than 38.8 million shares worth Rs 2,768 crore by Aditya Birla Capital and Sun Life AMC. The company garnered Rs 789 crore from anchor investors at the upper end of the Rs 695-712 per share price band on September 28. The issue will close on October 1.
“At the upper price band of Rs 712 and earnings per share of Rs 18.3 for FY21, the price-to-earnings ratio works out to 39x. As per the prospectus, the valuation looks reasonable, considering the average industry P/E of 40x,” said KRChoksey Research, which rates the issue a ‘subscribe.’
The AMC’s long-term prospects are favourable, given the increased awareness and participation in stock market investing and the growing potential for mutual funds, KRChoksey said.
“Aditya Birla Sun Life AMC is ideally positioned to capitalise on this opportunity. The company currently has a reasonable valuation compared to its peers,” it said.
Canara Bank Securities advised subscribing to the issue for the long term.
“The company’s market cap/AUM (assets under management) stands at 6.74 percent as on August 2021 against 14.33 percent, 9.97 percent, and 6.54 percent of HDFC AMC, Nippon India AMC and UTI AMC, respectively, which looks attractive among listed peers considering its financial performance,” it said.
Also read - Aditya Birla Sun Life AMC IPO: 10 key things to know before subscribing
Aditya Birla Sun Life AMC has been the largest non-bank affiliated AMC in India by quarterly average AUM since March 31, 2018, and among the four largest AMCs in India by the same measure since September 30, 2011.
Its AUM in B-30 cities (Beyond the Top 30) improved from Q4 of FY19 to Q1 FY22, which reflects its wide distribution network, said Canara Bank Securities.
“With its established brand, strong financial track record, under-penetration of mutual fund products and rising investment awareness, we believe the company is well-positioned to capitalise on favourable industry dynamics,” said Asit C Mehta, which recommended subscribing to the IPO from a long-term perspective.
Aditya Birla Sun Life’s AUM grew at a CAGR of about 15 percent to Rs 2,69,300 crore in FY21 from Rs 1,36,500 crore in FY16. This increased to Rs 2,93,642 crore as of June 2021. Revenue and profit grew at a CAGR of 7 percent and 21 percent, respectively, during FY16-FY21.
“Positive macro-economic factors and a robust industry growth prediction of around 12 percent CAGR over FY21-FY26E provide the company with a good opportunity to further grow,” said Nirmal Bang, which recommended subscribing to the issue for the long term because the company’s returns have consistently exceeded 30 percent.
With supportive government policies and increasing presence in B-30 cities, the macros of the domestic mutual fund sector are positive and provide huge scope for growth and development, Choice Broking said.
The company’s individual investor monthly average AUM grew at a CAGR of 18.38 percent to Rs 1,26,982 crore during FY16-FY21 and to Rs 1,33,353 crore as of June 2021.
Its individual investor monthly average AUM mix increased to 47.01 percent in June 2021 from 39.95 percent in FY16. Consistent with its market-leading position in individual investor monthly average AUM, its total investor folios more than doubled to 7.07 million in FY21 from 2.93 million in FY16.
AMCs have grown in recent years as they widen their presence across geographies on the back of investments by individuals. Also, tech is helping millennials to access AMCs easily.
The company will benefit from millennials who are keen to invest in the stock markets and have opened accounts, which will lead to flows in AMCs too, said Swastika, which assigned a ‘subscribe’ rating for the IPO for long-term investors.
The quarterly average AUM of mutual funds grew about 19 percent year-on-year in FY21. The sector’s AUM may grow at a CAGR of 11-13 percent to Rs 57 lakh crore from June 2021 to March 2026.
Aditya Birla Sun Life AMC managed 118 schemes comprising 37 equity (including diversified, tax saving, hybrid and sector) schemes, 68 debt schemes, two liquid schemes, five exchange traded funds and six domestic funds of funds as of June 30, 2021. It operates in 284 locations spread over 27 states and six Union Territories.
BP Wealth, Marwadi Financial Services, Anand Rathi Research, Ventura Securities, AngelOne, AUM Capital, and Dalal & Broacha Stock Broking are among those that also recommended subscribing to the issue.
On the downside, the increasing share of low cost of funds and Sebi's motive to reduce cost to customer are worrying factors for the mutual fund industry as both threatens the profitability of this business. Experts feel these are definitely risks for the industry, but underpenetration of stock market compared to global peers create lot of opportunities which is a long term positive.
"Prima facie changing industry structure and regulations are key challenges for the mutual fund industry but the opportunity of scale is very high as penetration of the stock market is hardly 4 percent in India however China, Korea has around 12-13 percent while the US is around 32 percent. So the long-term outlook for the industry is positive where industry is poised for strong growth amid competition and other challenges," said Santosh Meena, Head of Research at Swastika Investmart.
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