UTI AMC IPO to open on September 29: Here are 10 key things to know

1) About the issue

The IPO comprises an offer for sale of up to 3,89,87,081 equity shares by five shareholders.

State Bank of India, Life Insurance Corporation of India and Bank of Baroda will sell up to 1,04,59,949 equity shares each via public issue, while Punjab National Bank and T Rowe Price International (TRP) will divest up to 38,03,617 equity shares each.

The offer includes a reservation of up to 2 lakh equity shares for eligible employees. The total offer would constitute at least 30.75 percent of the post-offer paid-up equity of the company.

One can bid for a minimum of 27 equity shares and in multiples of 27 equity shares thereafter.

2) Price Band

The price band of the offer has been fixed at Rs 552 to Rs 554 per equity share.

3) Funds to Raise

UTI AMC is aimed to garner Rs 2,152 crore at lower price band - Rs 2,160 crore at upper price band.

4) Objects of Offer

The objects of the initial public offering are to achieve the benefits of listing the equity shares on stock exchanges and sale of up to 3,89,87,081 equity shares by the selling shareholders. All the money raised from public issue will go to selling shareholders after deducting the offer expenses and relevant taxes thereon. Company will not receive any proceeds from the offer.

5) Company Profile and Industry

UTI AMC is the second-largest asset management company in India in terms of total AUM and the eighth-largest asset management company in India in terms of mutual fund QAAUM as of June 2020, according to CRISIL. The company caters to a diverse group of individual and institutional investors through a wide variety of funds and services.

It manages the domestic mutual funds of UTI Mutual Fund, provides portfolio management services (PMS) to institutional clients and high net worth individuals (HNIs), and manage retirement funds, offshore funds and alternative investment funds.

It managed 153 domestic mutual fund schemes, comprising equity, hybrid, income, liquid and money market funds as of June 2020. UTI AMC's total QAAUM for domestic mutual funds was Rs 1,33,630 crore, while other AUM was Rs 8,49,390 crore. With 1.09 crore live folios as of March 2020, its client base accounts for 12.2 percent of the approximately 8.97 crore folios that, according to CRISIL, are managed by the Indian mutual fund industry.

UTI AMC provides discretionary PMS to Employees Provident Fund Organization (EPFO), Postal Life Insurance (PLI), National Skill Development Fund (NSDF) and advisory PMS to various offshore and domestic accounts. As on June 2020, AUM for PMS business was at Rs 6,97,050 crore.

As of June 2020, its distribution network includes 163 UTI Financial Centres (UFCs), 257 Business Development Associates (BDAs) and Chief Agents (CAs) (40 of whom operate Official Points of Acceptance (OPAs)) and 43 other OPAs, most of which are in each case located in B30 cities. The company also has offices in London, Dubai, Guernsey and Singapore, through which it markets offshore and domestic mutual funds to offshore investors who seek to invest in India.

Aggregate AUM of the Indian mutual fund industry has grown at a healthy pace over the past ten years, against the backdrop of an expanding domestic economy, robust inflows and rising investor participation, particularly from individual investors. Average AUM grew at a CAGR of 13 percent from Rs 7.6 lakh crore (trillion) as of March 2010 to Rs 27 lakh crore as of March 2020.

Average AUM of equity-oriented funds grew at a CAGR of approximately 20.5 percent, from Rs 3.7 lakh crore as of March 2015 to Rs 9.7 lakh crore as of June 2020, while average AUM of debt-oriented funds grew at a CAGR of approximately 4.9 percent, from Rs 5.3 lakh crore as of March 2015 to Rs 6.8 lakh crore as of June 2020, primarily driven by the IL&FS default and the ensuing NBFC crisis and subsequently exacerbated by the COVID-19 global pandemic.

Average AUM of other category of funds (including ETFs, index funds and FoF investing overseas) saw robust growth of approximately 57.2 percent CAGR over a lower base as institutional investors (such as the Employees’ Provident Fund Organisation or EPFO) began investing a portion (currently 15 percent) of their incremental deposits into equities via passively managed funds, an industry trend CRISIL expects to continue long term.

6) Strengths

a> Well-positioned to capitalise on favourable industry dynamics, including the under penetration of mutual fund products;
b> Pure-play independent asset manager with strong brand recognition and diverse portfolio of funds and services;
c> Multiple distribution channels with a wide reach and broad and stable client base;
d> Long-term track record of product innovation, consistent and stable investment performance and AUM growth;
e> Established position in retirement solutions through product innovation and large retirement fund mandates;
f> Experienced management and investment teams supported by strong governance structures and human resources programs;
g> Enhanced profitability driven by size and product mix.

7) Strategies

a> Drive superior investment performance across categories of funds;
b> Increase geographical reach and expand distribution channels;
c> Actively pursue additional partnership opportunities;
d> Continue to develop PMS, offshore and alternative funds businesses;
e> Leverage technology and digitisation to enhance organisational efficiency and cost optimisation, improve customer acquisition and experience, and ensure data security;
f> Continue to attract, retain and develop human capital.

8) Financials and Peers

Company's revenue during FY17-19 remained steady with Rs 1,050.5 crore in FY19, led by stable QAAUM. In FY20, revenue from operations declined 18.6 percent YoY to Rs 855 crore, due to a reduction in revenue from the sale of services and lower gains on fair value changes. Revenue declined at a 6 percent CAGR during FY17-FY20.

Its profit declined 20.6 percent YoY to Rs 276.4 crore in FY20, due to reductions in revenue from the sale of services and lower net gains on fair value changes, partly offset by a decrease in scheme expenses and management fees, ICICI Direct said.

"PAT as percentage of revenue declined from 38 percent in FY17 to 31 percent in FY20, though in Q1FY21 has increased to 37 percent. Consequently, return on equity (RoE) declined from 18.5 percent in FY17 to 10 percent in FY20, which has increased to 3.6 percent (non-annualised) in Q1FY21," the brokerage added.

The company can be compared with listed peers - HDFC Asset Management Company and Nippon Life Asset Management.

9) Management

Dinesh Kumar Mehrotra is the Non-Executive Chairman and Independent Director of the company, while Imtaiyazur Rahman is the Whole-time Director and Chief Executive Officer.

Imtaiyazur has over 30 years of experience in management, business leadership and forming a strategic alliance. He is associated with the UTI AMC since 2003.

Ashok Shah, Deepak Kumar Chatterjee, Dipali H Sheth, Jayashree Vaidhyanathan, Narasimhan Seshadri, Rajeev Kakar and Uttara Dasgupta are Independent Directors, while Edward Cage Bernard and Flemming Madsen are Non-Executive Directors.

10) Shareholders

UTI AMC is a professionally managed company and does not have an identifiable promoter. Its principal shareholders are State Bank of India, LIC, Bank of Baroda, PNB and T Rowe Price which held 18.24 percent, 18.24 percent, 18.24 percent, 18.24 percent and 26 percent of the pre-offer paid-up equity share capital.

Post issue, PNB's shareholding will be reduced to 15.24 percent and TRP to 23 percent. The stake of SBI, LIC and Bank of Baroda will be reduced to 9.99 percent each.