Overwhelming response to the issue indicated the listing could be at a hefty premium and experts also agreed with the same.
HDFC Asset Management Company, the country's second-largest mutual fund house, is set to debut on the bourses on August 6, after receiving a great response to the issue from institutional investors.
The joint venture fund house raised Rs 2,800.33 crore through public issue and issued 2,54,57,555 equity shares at Rs 1,100 per share. Housing Development Finance Corporation and Standard Life Investments lower their shareholding via this IPO.
The public issue was subscribed 83.06 times receiving bids for 156.19 crore equity shares against IPO size of 1.88 crore shares (excluding anchor portion). The reserved portion of qualified institutional investors oversubscribed by 192.26 times, non-institutional investors 195.15 times and retail 6.73 times during July 25-27.
Such an overwhelming response indicated the listing could be at a hefty premium and experts agree.
Sources told Moneycontrol that current grey market premium suggests that the stock may fetch a premium of Rs 500-600 per share over issue price of Rs 1,100. Market experts peg the listing around Rs 1,450-1,600 apiece.
Why did the issue have so much demand?
As history suggests, HDFC's has created enormous wealth for shareholders and has been a defensive play in the market. The group is backed by big foreign and Indian institutional investors and mutual fund houses owing to its strong corporate governance and earnings performance.
That is why all HDFC Group companies trade at premium valuations and so is the case with HDFC AMC.
Experts said HDFC AMC's premium valuations to peers are justified on account of higher profit CAGR, strong pedigree, HDFC's brand, distribution, long term performance, relatively stable management profile, high dividend payout, higher mix of high-margin equity assets than the industry average and high capital return ratios.
"The blockbuster IPO of HDFC AMC has received superlative response from investors across categories i.e. QIPs, HNIs and retail. That is quite understandable as HDFC group companies have been extraordinary wealth creators for investors across the world," Jagannadham Thunuguntla, Sr. VP and Head of Research (Wealth), Centrum Broking told Moneycontrol.
He said HDFC AMC is a top-of-the-league asset management company with highest profitability in the industry, very high return on equity, largest equity oriented AUM and excellent brand strength of the group.
This would be fourth company from the HDFC Group to list on bourses, so let's check what experts say about the listing:
HDFC AMC Listing Price
Nishar Pujara of BP Wealth, expects the stock to list at around Rs 1,500-1,600 per share against its issue price of Rs 1,100 while Siddharth Khemka, Head- Retail research, Motilal Oswal Securities says looking at the huge oversubscription of the issue (83x), the issue could list at a premium of around 30-35 percent i.e. in the range of Rs 1,450-1,500 levels.
Prashanth Tapse, Associate VP, Mehta Equities, believes HDFC AMC would list around Rs 1,430-1,540 range. "Premium listing seems to be justified, assuming based on higher investment inflows expected going forward and low penetration levels in the MF space."
Astha Jain, Senior Research Analyst, Hem Securities, expects it to debut at somewhere around Rs 1,500 while Sumit Bilgaiyan, Founder of Equity99 believes the stock will list around Rs 1,450.
Strategy on HDFC AMC Listing Day
"After a likely bumper listing, he advised holding the stock for long term, citing a well diversified distribution network, superior brand and strong parentage, management’s ability to deliver strong investment performance and commitment towards constantly increasing distribution reach, and strengthen product portfolio."
"I would suggest holding on to the stock on listing even if it were to list at a huge premium. HDFC AMC being a market leader in the Indian Mutual fund industry is expected to be one of the best beneficiary of the increasing financialisation of household savings in India.
The company has a very strong brand and parentage, along with higher share of equity AUM giving it industry leading growth, profitability and return ratios."
"We would like to advice alloted investors to hold on to the counter and be invested for long term as we believe investors are getting best opportunity to invest in the industry leader at a reasonable price.
Assuming Indian Mutual Fund Industry is in focus and expecting higher inflows going forward and with low penetration levels will support growth in AMC business in the long run."
"One should hold on listing day as company being consistent & strong financial performer is expected to gain with wider penetration of mutual fund industry in Indian Savings area going forward."
"If you are among lucky ones who have received the allotment during the IPO, Hold it. No need to sell the stock for the short term gain. HDFC AMC comes from solid pedigree and the way finanacialization is happening in India it’s a must hold on stock."
When should one buy HDFC AMC?
"For buying the stock, I said one can accumulate the stock if it corrects 10-15 percent after listing or whenever the euphoria fizzles out going ahead."
"It would totally depend on the listing price / premium. I would be more comfortable to buy if HDFC AMC lists below Rs 1,450 (less than 30 percent premium to the IPO price).
At the higher end of the IPO price band (Rs 1,100), HDFC AMC was valued at 32x FY18 EPS. While the premium valuations are justified, a higher listing price would make the stock even more expensive leaving limited room for gains in the near term."
However, given the low float of Rs 2,800 crore and the high investor interest, the stock could witness continuous buying leading to even higher valuations. Hence it would be a difficult call to take on listing.
"We advice those who have missed this opportunity should think of adding it if by any change the stock lists near to 30 percent premium as we see significant value has been left on the table for incoming investors on long term basis.
Considering the higher concentration level of equity assets in the AUM compared to other listed entity, most profitable AMC label and the parent brand name association, IPO premium listing seems to be justified.
"If stock is available during intraday volatility somewhere below Rs 1,500 on listing day then we advise to buy."
"We would advise to buy on listing at least few shares, and keep adding it at lower levels, if you got. The pedigree and brand value of HDFC is such a huge that it’s stocks are never available to cheap compared to it’s peers or to the market itself."
"For investors, we believe it should be a portfolio stock for long term wealth creation."
HDFC AMC One-year Target
Astha Jain said 70-80 percent above issue price return can be assigned as long term target for one year horizon while Sumit Bilgaiyan said he has a target price of Rs 1,750 for one year.
Prashanth Tapse expects that HDFC AMC would report better business performance on the long run as leader would attract more healthy AUM growth going forward and will match up to its listed group companies performance for building long term wealth. "Hence we recommend investors to Hold/Add the counter with a view of making long term wealth with one year a target near Rs 1,700-1,800 after listing.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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