HDFC AMC aims to raise Rs 2,787.6 crore at lower end of price band and Rs 2,800.33 crore at higher price band.
HDFC Asset Management Company, the joint venture between Housing Development Finance Corporation and Standard Life Investments, is set to open its initial public offering for subscription on July 25.
This is the sixth public offer of the current financial year 2018-19, after TCNS Clothing, Varroc Engineering, RITES, Fine Organics Industries and Indostar Capital Finance.
Equity shares offered through this public issue are proposed to be listed on BSE and NSE.
The book running lead managers to the offer are Kotak Mahindra Capital Company, Axis Capital, DSP Merrill Lynch, Citigroup Global Markets India, CLSA India, HDFC Bank, ICICI Securities, IIFL Holdings, JM Financial, JP Morgan India, Morgan Stanley India and Nomura Financial Advisory and Securities (India).
Here are 10 key things you should know before subscribing the issue:
HDFC Asset Management Company offers a large suite of savings and investment products across asset classes. As of March 2018, it offered 133 schemes that were classified into 27 equity-oriented schemes, 98 debt schemes (including 72 fixed maturity plans (FMPs), three liquid schemes, and five other schemes (including exchange-traded schemes and funds of fund schemes).
It has been the most profitable asset management company in India in terms of net profits since fiscal 2013, according to CRISIL.
It has been the largest asset management company in India in terms of equity-oriented AUM since the last quarter of Fiscal 2011 and has consistently been among the top two asset management companies in India in terms of total average AUM since the month of August 2008, according to CRISIL.
The company had a total asset under management (AUM) of Rs 2,91,985 crore as of March 2018.
As of March 2018, it served customers in over 200 cities through a pan-India network of 209 branches (and a representative office in Dubai) and service centres of the registrar and transfer agent, which is supported by a strong and diversified network of over 65,000 empaneled distribution partners across India, consisting of independent financial advisors, national distributors and banks.
About Public Issue
The initial public offering, which comprises of up to 2,54,57,555 equity shares of face value of Rs 5 each, will close on July 27.
The public issue comprises an offer for sale of up to 85,92,970 equity shares by Housing Development Finance Corporation and up to 1,68,64,585 equity shares by Standard Life Investments.
The offer comprises a net offer to the public of up to 2,21,77,555 equity shares, a reservation of up to 3,20,000 shares for purchase by the eligible HDFC AMC Employees, a reservation of up to 5,60,000 shares for purchase by the HDFC employees and a reservation of up to 24,00,000 shares for purchase by HDFC shareholders.
The offer and the net offer will constitute 12.01 percent and 10.46 percent of the post-offer paid-up equity share capital of the company, respectively.
The price band for the offer is fixed at Rs 1,095-1,100 per share. Bids can be made for a minimum lot of 13 equity shares and in multiples of 13 equity shares thereafter.
HDFC AMC aims to raise Rs 2,787.6 crore at lower end of price band and Rs 2,800.33 crore at higher price band.
Objects of the Issue
The company will not receive any proceeds from the offer and all the proceeds from the offer will be received by the promoter selling shareholders.
Hence the main object of the offer is to achieve the benefits of listing the equity shares on the stock exchanges and to carry out the sale of equity shares offered for sale by the promoter selling shareholders.
Competitive Strengths and Strategies
> HDFC AMC has consistent market leadership position in the Indian mutual fund industry.
> The company believes that it has strong brand recall among Indian customers, which it attributes, in part, to the strength of brand and strong parentage. It benefits from the brand reputation of promoters, HDFC and SLI.
> It has strong investment performance supported by comprehensive investment philosophy and risk management.
> It has superior and diversified product mix distributed through a multi-channel distribution network.
> With an individual investor focused strategy, it has a customer base with a greater proportion of individual AUM in comparison to the overall Indian mutual fund industry. Its ability to attract and retain customers is broadly a result of customer centric approach and service.
> It has been the most profitable asset management company in India in terms of net profits since fiscal 2013, according to CRISIL.
> The company is led by a management team with extensive experience in the asset management, banking and finance sectors with a proven track record of performance. It has a strong and stable investment team.
> Its endeavour is to continue to deliver superior investment performance against benchmarks and peer groups over medium to long-term periods.
> It currently has 150 branches in B-15 cities and will continue to expand presence to deepen geographical reach further. Along with opening new branches, it also aims to increase the number of employees in sales and distribution and customer services teams. It is also focused on expanding distribution reach to attract global clientele.
> It aims to offer need-based and customer-centric products that address the core needs of diversified customer base. It typically exercises discipline in launching new funds and prefers to focus on growing our existing funds.
> It aims to progress towards a digital model to meet customers' requirements by personalising offerings, facilitating easy on boarding, ease in transacting and access to other relevant data through digital platform.
The company had a total asset under management (AUM) of Rs 2,91,985 crore as of March 2018. Equity-oriented AUM and non-equity-oriented AUM constituted Rs 1,49,713 crore and Rs 1,42,273 crore, respectively, of total AUM.
Actively managed equity-oriented AUM (which excludes index linked and arbitrage schemes) constituted Rs 1,44,925 crore of total AUM. AUM has grown at a compounded annual growth rate (CAGR) of 25.5 percent between March 2013 and March 2018. Its proportion of equity-oriented AUM to total AUM was at 51.3 percent, which was higher than the industry average of 43.2 percent, according to CRISIL.
Market share of total AUM was 13.7 percent and of actively managed equity-oriented AUM (which excludes index linked and arbitrage schemes) was 16.8 percent among all asset management companies in India, according to CRISIL.
Its AUM has grown at a CAGR of 33.9 percent since Fiscal 2001 and profits have grown at a CAGR of 32.1 percent since first full year of operations in fiscal 2002.
Promoters of the company are HDFC and Standard Life Investments. As of July 13, HDFC holds 12,07,72,800 equity shares and Standard Life Investments 8,05,15,200 shares, which constitutes 56.97 percent and 37.98 percent, respectively, of company’s pre-offer issued, subscribed and paid-up equity share capital.
Deepak Parekh is a Non-Executive Director and Chairman on Board. He has been on Board since July 4, 2000. He is also the non-executive director and chairman of HDFC.
Keki Mistry is a Non-Executive Director on Board. He has been a Director on Board since December 24, 2007. He is also the vice chairman and chief executive officer of HDFC. He joined HDFC in 1981.
Milind Barve is the Managing Director and an Executive Director of the company since July 4, 2000. He has been associated with HDFC in the capacity of general manager – treasury where he headed the treasury operations at HDFC for 14 years and was responsible for the management of HDFC’s treasury portfolio and for raising funds from financial institutions and capital markets.
Prashant Jain is the Chief Investment Officer of the company. He has been associated with company for over 14 years since June 20, 2003 and was appointed as the Chief Investment Officer with effect from July 1, 2004.
Management Organisation Structure
Risks and Concerns
Here are some risks and concerns highlighted by several brokerage houses:
> Low financial literacy and lack of awareness, unless addressed properly, will inhibit the industry's growth.
> Competition from other financial instruments.
> Expansion into B-15 cities would require mutual funds to invest in marketing and distribution channels. The additional marketing expenses can put pressure on the profit margins of mutual fund houses.
> As of March 2018, top six equity-oriented schemes constituted 79.1 percent of total equity-oriented AUM and top six debt schemes constituted 65.5 percent of total debt AUM. The performance of these schemes has a significant impact on AUM and consequently revenue. Underperformance by any of these schemes may have a disproportionate adverse impact on the AUM and revenue.
> The company relies on third-party providers in several areas of the operations and may have not full control over the services provided by them to either the company or the customers.
> The company’s revenue, results of operation etc. are, to a certain extent, dependent on the strength of brand and reputation as well as reputation of other HDFC group entities and Standard Life Investment group companies.
> The company’s investment strategies can perform poorly for a number of reasons, including general market conditions, investment decisions that it makes, its inability to identify appropriate investment opportunities and the performance of the companies in which it invests on behalf of its schemes.
> The company depends on the skills and expertise of its investment professionals. its success depends on its ability to retain key members of its investment teams, who possess substantial experience in investing and have been primarily responsible for the historically strong investment performance the company has achieved.
> Any regulatory changes or competitive pressure leading to reduction in fund management charges can affect revenues and profits adversely.
> Fee reductions on existing or future business would have an adverse impact on the company’s income and profitability.
> Any decline in the Indian equity and/or debt markets would impair scheme performance, reduce net inflows and cause AUM to decline.
> As many of the company’s distribution relationships are non-exclusive, distributors may provide similar services to the company’s competitors or prioritise competitors’ investment product over the company’s. This could have a materially adverse impact on the company’s revenue and results of operations.> From FY19, the company is required to prepare financial statements in accordance with IND AS. Given that IND AS is different in many respects from Indian GAAP under which financial statements were historically prepared, financial statements for the period commencing April 1, 2018 may not be comparable to historical financial statements that were prepared under Indian GAAP. Further, transition to IND AS reporting may lead to difficulties in the ongoing process of implementing and enhancing management information systems.