Last week, Infrastructure Development Finance Company Ltd (IDFC) agreed to sell a 25% equity stake in IDFC AMC and the trustee company to Paris-based Natixis Global Asset Management. According to news reports, the deal has been struck at 275 crore, valuing IDFC’s fund management business at 1,100 crore. This translates into around 5.5% of its average assets under management (AUM) of 19,946 crore as on 30 September.

Analysts maintain that the deal is richly valued and higher than most recent such deals. A note from JPMorgan points out the recent UTI stake sale to T Rowe Price was concluded at about 3.5% of AUM and many other post 2008 transactions have concluded at less than 4% of AUM.

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Further, IDFC had paid higher valuations when it acquired Standard Chartered AMC (around 6% of AUM). IDFC bought Standard Chartered’s mutual fund business in March 2008 and rebranded it IDFC AMC, marking its entry into the mutual fund business at the time.

Nevertheless, the valuation for IDFC’s AMC business is still a little less than some estimates. Edelweiss Securities Ltd analysts valued it at 1,234 crore in the September 2010 quarter, after the results note last month.

The deal gives IDFC AMC an opportunity to improve its international distribution and gain access to global investors who are keen to participate in India’s growth story. At the same time, Natixis will be able to expand its footprint.

IDFC’s stock has sharply underperformed after its September quarter results and is down by 20% to 171 per share. During the same period, the BSE-100 index declined by 6%. IDFC’s return on equity is expected to be subdued for some time on account of capital raising. There’s also the concern about spreads coming under pressure in a rising interest rate environment.

Graphics by Yogesh Kumar/Mint

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