HDFC AMC said to have priced its IPO lower than market expectation

Mumbai: HDFC Asset Management Co. Ltd, which is launching its initial public offering (IPO) on 25 July, has priced its shares at ₹ 1,095-1,100 apiece, valuing the asset manager at ₹ 23,319 crore. The country’s second largest asset management company is a joint venture of mortgage lender Housing Development Finance Corp. Ltd (HDFC) and Standard Life Investments Ltd.

The asset manager has left significant value on the table for public market investors, said two people aware of the development on condition of anonymity.

“Investors were valuing the company at ₹ 25,000 to ₹ 26,000 crore, in the extensive roadshows that the company undertook, and there would have been significant demand for the IPO at that price as well. However, the HDFC group has priced the IPO at around ₹ 23,000 crore valuation, which means that significant value has been left on the table for incoming investors,” said one of the two people cited above.

The other listed AMC Reliance Nippon Life Asset Management Co. Ltd is valued at ₹ 13,739.4 crore, according to its closing stock price on Thursday. The company’s stock price has declined almost 11% from its IPO price of ₹ 252 per share.

“They (HDFC Group) are definitely asking for a higher valuation than what Reliance AMC did. Reliance has seen its stock price reduce from the IPO price. So that is available at a even cheaper price today. So there is definitely a substantial premium that HDFC is asking,” said Arun Kejriwal, founder of research firm KRIS.

However, he added that the HDFC brand is a much more widely accepted brand in the financial services industry.

At the IPO valuation, HDFC and Standard Life will collectively raise ₹ 2,800 crore from selling over 12% stake. HDFC is selling 4% stake, while Standard Life is selling 8% stake through the IPO.

“HDFC as a group so far has always created value through its various listed entities for shareholders. We wanted to leave enough on the table for investors in this issue as well,” said a spokesperson for the company.

HDFC group’s last public offering that of HDFC Standard Life Insurance Co. Ltd delivered good returns to investors.

Since its IPO, the stock price of HDFC Standard Life has gained by 62.5% to ₹ 471.25 per share.

Last year, HDFC Standard Life Insurance Co. Ltd went public in an IPO that saw shareholders HDFC and Standard Life sell shares worth ₹ 8,695 crore to the public. The insurance company was valued at ₹ 58,277 crore at the time of the IPO.

As of 31 March, HDFC AMC’s assets under management (AUM) stood at ₹ 2.91 trillion, of which equity-oriented AUM and non-equity-oriented AUM constituted ₹ 1.49 trillion and ₹ 1.42 trillion, respectively.

The asset manager’s assets under management has grown at a compounded annual growth rate of 25.5% between FY2013 and FY2018.

In the financial year 2017-18, HDFC AMC reported a revenue of ₹ 1,867.2 crore, up from ₹ 1,587.9 crore in the previous year.

In 2017-18, the asset manager reported a profit of ₹ 721.6 crore, as compared with a profit of ₹ 550.2 crore a year ago.

Till June this year, 18 companies raised ₹ 23,451.59 crore through the initial public offering route, while in 2017, 36 companies raised ₹ 67,147.1 crore through IPOs, data from primary market tracker Prime Database shows.