Mumbai: Axis Asset Management Co. Ltd, Indiabulls Financial Services Ltd and L&T Finance Ltd have emerged as the top contenders for the assets of DBS Cholamandalam Asset Management Ltd.
Edelweiss Capital Ltd is investment banker for the deal.
A DBS Cholamandalam executive, who spoke on condition of anonymity, said negotiations are at an advanced stage and the deal could be closed soon.
The price is likely to be around Rs80 crore, said an investment banker, who did not want to be identified.
Axis Asset Management is the new kid on the block in the mutual fund business; it has been promoted by Axis Bank Ltd. The bank received the Securities and Exchange Board of India’s (Sebi) nod for entering the mutual fund business last week. L&T Finance has not yet moved the capital markets regulator seeking its nod for starting an asset management company (AMC), while Indiabulls is awaiting an approval.
Rajiv Anand, managing director and chief executive of Axis AMC, said: “We are happy to look at acquisitions if the deal comes at the right price and matches our investment philosophy, but we would not like to comment on any specific deal.”
N. Sivaraman, director at L&T Finance, said: “Asset management business looks interesting to us. We have not yet applied to Sebi. There are multiple options available for inorganic growth.”
“An acquisition can help us get into the business fast. But till such time we take a final decision, it continues to be a speculation,” he added.
Indiabulls Financial Services couldn’t be reached for comment. Spokespersons of DBS as well as the Murugappa Group declined comment on “market speculation”.
DBS Cholamandalam Asset Management is a subsidiary of Cholamandalam DBS Finance Ltd, a joint venture between Chennai-based Murugappa Group and DBS Bank Ltd of Singapore, with each holding 37.5% and the rest being held by the public.
In August, it had Rs2,893.16 crore worth of assets under management (AUM). Of this, equity assets account for Rs252.93 crore under 11 schemes and the rest is debt. The volume of AUM plays a key role in valuing an AMC. At Rs80 crore, the cost of DBS Cholamandalam works out to be around 3% of its assets.
Typically, larger the equity asset base of the fund house, the higher its valuation. Debt funds receive lower valuation as the commission from managing such funds is lower than that on equity funds.
“A 3% valuation for DBS Cholamandalam would be on the higher side as most of the assets of the fund house are under debt and liquid schemes that fetch lower income compared with equity schemes,” said a senior official at a large bank-controlled AMC, who did not want to be identified.
DBS Cholamandalam has 78 employees, including 12 fund managers and 40 back-office employees. It is present at 22 locations across India and has at least 118,000 customer accounts. It posted a Rs38 crore loss for the year ended March.
Axis Asset Management, which is yet to launch its first fund, has 50 employees, including four fund managers and 10 back-office employees.
“Integration of employees is an issue that has to be looked into carefully. These kinds of acquisitions often result in retrenchment (of staff) which is avoidable,” said the DBS Cholamandalam official.
“We are aiming to have 100 employees and 8-10 schemes in our portfolio by March 2010. We have targeted a market share of 3% in terms of AUM in the next four-five years, which would place us among the top 10 fund houses in the country,” said Anand of Axis AMC.
India’s Rs7.49 trillion by assets mutual funds industry has 36 players, with Reliance Capital Asset Management Ltd topping the list with an average AUM of Rs1.17 trillion in August. It is followed by HDFC Asset Management Co. Ltd with average assets of Rs93,874.19 crore and ICICI Prudential Asset Management Co. Ltd with Rs77,966.86 crore.
Though the valuation of DBS Cholamandalam is seen as expensive by some fund managers, some deals in the past have been closed at higher valuations. For instance, Infrastructure Development Finance Co. Ltd (IDFC) in March 2008 took over Standard Chartered Bank’s asset management business in India for $205 million (nearly Rs995 crore today), valuing the firm at 5.67% of its AUM. IDFC retained the StanChart AMC’s staff.
In December 2007, Eton Park Capital Management Lp acquired a 5% stake in Reliance Capital Asset Management for Rs501 crore, valuing the AMC at 13% of its AUM.
In November, Religare AEGON Asset Management Co. Ltd (now known as Religare Asset Management Co. Ltd as Aegon exit the joint venture) bought Lotus India AMC, a joint venture between Fullerton Fund Management Group and London-based Sabre Capital Worldwide for around Rs110 crore, which valued Lotus AMC at about 2% of its AUM of Rs5,500 crore. About 90% of Lotus AMC’s assets were debt.
N. Sundaresha Subramanian contributed to this story