Joining the list of firms tapping the markets, asset management companies (AMCs), too, are raising funds via initial public offerings (IPOs) and getting listed on the exchanges. UTI AMC and Aditya Birla Sun Life AMC are two recent examples, while HDFC AMC and Nippon India (Reliance earlier) AMC got listed a few years back.
What has driven these listings and how is the valuation game being played by these fund houses? What are the views of analysts tracking the segment? Here are the details.
HDFC AMC leads the pack
The country's third largest asset manager, HDFC AMC, commands the highest valuation on the stock markets. The company has a market capitalisation of Rs 62,112 crore. It reported net profits of Rs 1,326 crore for FY2020-21.
At its current market cap, the stock trades at a value of 14 percent of its AUM (Rs 4.38 lakh crore).
HDFC AMC was long plagued by poor performance, which partly appears to the reason behind its stock’s lackadaisical performance since November 2019. Some schemes are making a comeback.
The new MD & CEO, Navneet Munoot, has brought in fresh impetus. After shunning passive schemes, the fund house is taking to ETFs and index funds.
“HDFC AMC continues to be expensively valued. As investor flows into mutual fund schemes have been strong, AMCs with less expensive valuations, but with same characteristics, can be looked at. There is a valuation catch-up possible in such AMCs,” says Madhukar Ladha, analyst at Elara Capital.
First mover Nippon Life India AMC
Nippon Life India AMC (NAM) was the first fund house to get listed on the domestic stock exchanges. It commands a market cap of Rs 27,610 crore. The AMC had reported profit after tax of Rs 681.1 crore in financial year 2020-2021, which was nearly 60 percent higher than the previous financial year. The AMC’s stock has delivered returns of 65 percent in the past one year. At its current market cap, the AMC is valued at 10 percent of its AUM (Rs 2.65 lakh crore). The change of ownership from Reliance to Nippon Life has helped.
“NAM has got back quite a bit of its market share on the debt side. It is yet to see similar improvement on the equity side, but with its equity schemes doing well, we can see improvement on equity side as well,” says an analyst who did not wish to be named.
Scheme performances on its equity side have been reasonable.
Its healthy bouquet of ETFs and a well-oiled liquidity management machine have helped the house.
“Nippon Life India AMC has a competitive advantage in the ETF space as it possesses the ability to charge higher yield to ETF customers, to the tune of 5 bps or more, due to higher liquidity in their ETF products and also the ability to introduce differentiated ETF products,” says Shivaji Thapliyal, lead analyst (institutional equities) at YES Securities.
The latest entrant: Aditya Birla Sun Life AMC Aditya Birla Sun Life AMC (ABSL AMC) recently got listed on the domestic stock exchanges. At its current market cap, the AMC is valued at 7 percent of its AUM (Rs 2.98 lakh crore). The AMC has market cap of Rs 20,149 crore.
Analysts in the IPO note have pointed out that the AMC has lower share of equity assets in its overall asset mix, compared to other listed peers. Higher the share of equity assets, better are the profits of an AMC as higher fees can be charged on equity schemes. At the same time, the AMC has a lower share of ETFs, which is a positive as AMCs are required to charge lower fees on ETFs.
The AMC has generated profit after tax of Rs 526.3 crore in financial year 2020-2021.
Analysts also point out that the fund house did better than its listed peers on the debt side during the recent credit crisis. “Over FY18-20, when the credit crises resulted in debt redemptions and write-offs across mutual funds, ABSL AMC saw a lower correction (18 percent) in its debt AUM,” says Gaurav Jani, analyst at Centrum, in his IPO note.
UTI AMC on the mend
UTI AMC got listed on the stocks exchanges in October 2020. The share price of the AMC has more than doubled (121 percent) since its listing. At its current market cap, the AMC is valued at 6 percent of its AUM. UTI AMC has the lowest market cap of Rs 13,395 crore.
The fund house was without a full-time chief executive officer for nearly two years.
That’s all in the past now. Just before the fund house went public in October, 2020, Imtaiyazur Rahman, who’s been with the fund house for 23 years, was appointed the head.
Also read: UTI AMC IPO draws strong interest from rival fund houses
Meanwhile, its equity segment, headed by its chief investment officer Vetri Subramaniam has managed to revive scheme performances.
The biggest advantage of UTI AMC is its massive reach in smaller towns, or Beyond top 30 (B30) towns of India.
Earlier this year, the cap on management fees chargeable on the National Pension Scheme was raised from 0.01 percent to 0.09 percent. This move should benefit UTI AMC, as it is one of the five pension fund managers.
Ladha says that historically the expenses for UTI AMC have been high, but these could significantly decrease, as 250-odd employees are expected to retire over the next 3-4 years. “This will lead to lot of cost savings and would translate into improved profitability,” he says.
The AMC reported profit after tax (consolidated) of Rs 494 crore.
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