The Rs 2,160-crore initial public offering (IPO) of UTI Asset Management Company, the eighth-largest asset management company in India in terms of mutual fund QAAUM, has been subscribed only 78.5 percent on September 30, the second day of bidding. The issue closes October 1.
The response seems to be lukewarm when compared to Mazagon Dock Shipbuilders and Likhitha Infrastructure IPOs that too are open for subscription. These issues, however, are smaller in size compared to UTI AMC.
The UTI AMC IPO received bids for 2.15 crore equity shares against an offer size of 2.73 crore equity shares, the data available on exchanges showed. The price band has been fixed at Rs 552-554 per share.
The offer size excludes the anchor book portion that opened for a day on September 28. The company has received Rs 645 crore from anchor investors.
The portion set aside for retail investors has been subscribed 1.15 times and that of employees 66.5 percent. The reserved portion set aside for non-institutional investors has been subscribed 34.7 percent and that of qualified institutional buyers 47.82 percent.
The company has reserved 2 lakh shares for employees. The public issue consists an offer for sale of 3,89,87,081 equity shares by sponsors State Bank of India, Bank of Baroda, PNB and LIC, with each having a 18.24 percent pre-offer stake in the company, and private equity firm T Rowe Price International, which holds 26 percent stake.
"The company is bringing the issue at P/E multiple of approximately 25x at higher end of the price band of Rs 552-554 per share on FY20 EPS basis. Company is pure play independent asset manager with strong brand recognition & diverse portfolio of funds with multiple distribution channels, wide reach, broad and stable client base," Hem Securities said.
"The company has an established position in retirement solutions through product innovation and large retirement fund mandates. Also, valuation are looking reasonable at which the company is bringing the issue. Therefore, we recommend subscribe the issue," the brokerage added.
UTI AMC is the second-largest asset management company in India in terms of total AUM and the eighth largest in terms of mutual fund QAAUM as of June 2020. The company also had the largest share of its monthly average AUM attributable to B30 cities of the top ten Indian asset management companies by QAAUM.
With 1.09 crore live folios as in March 2020, the company's client base accounts for 12.2 percent of the approximately 89.7 crore folios managed by the Indian mutual fund industry as of that date.
The company manages 153 domestic mutual fund schemes, comprising equity, hybrid, income, liquid and money market funds as of June 2020. Its domestic mutual fund QAAUM was Rs 1.3 lakh crore as of June 30, 2020, which accounted for approximately 5.4 percent of the QAAUM invested in all mutual funds in India as of June 2020.
Centrum Broking is optimistic about the AMC space as asset management, being a fee-based business, is slated to grow (QAAUM) at an 18 percent CAGR in the medium term led by overall economic growth, growing investor base and higher disposable income levels.
"Recent regulatory changes such as revised expense ratios would lower costs for mutual fund investors which should aid in greater retail participation. Over FY17-20, return on equity fell from 18.5 percent to 10.2 percent as yield dropped by 10bps since the mix shifted from debt to liquid and others while equity share at 32 percent as at June 2020 is lower to listed peers. Weaker RoE profile was also driven by lower dividend payout (4-year average 19 percent). This could change as equity outlook is positive and dividend payout might rise to 50 percent in FY21E. Valuation is attractive with P/E at 25.4x FY20 EPS," said the brokerage.UTI AMC also manages retirement funds, National Pension System, offshore funds, including the Shinsei UTI India Fund, a co-branded fund with Shinsei Bank of Japan, and alternative investment funds.