New Delhi: The 2,800 crore initial public offering (IPO) of HDFC Asset Management Co. Ltd, or HDFC AMC, is off to a strong start. The issue was nearly 1.5 times subscribed as of 11:15 am on Day 2, according to NSE data. On the opening day itself, the issue was oversubscribed. India’s second largest mutual fund house, HDFC AMC is offering 25.46 million shares in a price band of 1,095-1,110 apiece. Retail investors can apply up for up to 2 lakh in HDFC MF shares, with a lot size of minimum 13 shares and in multiples of 13 thereafter. At the upper end of the price band, the retail application money per lot is 14,300. Many brokerages are optimistic about the HDFC AMC IPO, citing strong brand value, large scale operations and robust outlook. The issue closes on Friday.

HDFC AMC is a joint venture of mortgage lender Housing Development Finance Corp. Ltd (HDFC) and Standard Life Investments. Post the IPO, their shareholding will reduce to 82.94% from 94.95%, while the public shareholding will increase from the current 5.05% to 17.06%.

Since the HDFC AMC IPO issue is an offer for sale, the company will not receive any proceeds from it. Offer for sale means existing shareholders of the company are selling their shares through the IPO. Karvy Computershare Pvt. Ltd. Is the registrar of the issue.

(Also read: How to evaluate HDFC MF IPO)

The risk factors for HDFC MF’s business include adverse market fluctuation, adverse economic conditions, underperformance of investment products, and failure to continue with existing distribution relationships or to secure new distribution relationships.

Indicative HDFC AMC IPO timeline, according to Choice Broking

Finalization of basis of allotment: 1 August 2018

Unblocking of ASBA account: 2 August 2018

Credit to demat accounts: 3 August 2018

Listing on stock exchanges: 6 August 2018

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HDFC AMC had reported a 31% jump in net profit at 722.61 crore in 2017-18 from 550.24 crore in the previous financial year. The company’s total revenue surged 17.6% year-on-year to 1,867.24 crore in 2017-18. HDFC AMC on Tuesday garnered 732 crore from anchor investors.

(Also read: Brokerages are optimistic on HDFC AMC IPO)

Brokerage views on HDFC AMC IPO

Brokerage Motilal Oswal Securities Ltd has recommended “subscribe" to the HDFC AMC IPO.

“Favourable perception of HDFC AMC brand, higher mix of high-margin equity oriented AUM, consistent RoE of 40%, a wide distribution network and increasing dividend payouts work in HDFC AMC’s favour," said Motilal Oswal in a note on 24 July. “At the upper price band, HDFC AMC is valued at 32 times FY18 EPS (20% premium to its only listed peer Reliance Nippon AMC), which is justified given the strong parentage, consistent market leadership and superior growth."

“HDFC AMC is led by a management team with extensive experience and proven track record of performance. Their senior management team has been with them for an average of 13 years and has a total average work experience of 26 years. Its leadership team is committed to growing their business, as demonstrated by 33.9% CAGR in AUM since FY01 and 32.1% CAGR in profits since FY02," it added.

Angel Broking too has a “subscribe" recommendation to HDFC AMC IPO. “Considering that HDFC AMC is the second largest AMC, coupled with huge potential of mutual fund industry growth, strong return ratios, asset light business, higher dividend payout ratio and track record of superior investment performance, we are positive on this IPO and rate it as subscribe," Angel Broking said in a note.

Choice Broking, while recommending “subscribe" to the HDFC AMC IPO, said: “On the valuation front, HDFC AMC is demanding a valuation of 7.8% to its FY18 AUM, whereas as its only peer Reliance Nippon Life Asset Management Ltd is trading at 5.6% to its AUM. Considering the higher concentration of equity assets in the AUM, most profitable AMC tag and the brand name associated, we feel that the higher valuation demanded by HDFC AMC seems to be justified."

According to a note from ICICI Securities Ltd, HDFC AMC has made a reservation of up to 9.43% of the total offer size for HDFC shareholders. There is a reservation of up to 1.26% and 2.2% of the total offer size for eligible employees of HDFC AMC and HDFC, respectively.

All HDFC shareholders, says the ICICI Securities note, as on 14 March 2018, can make three applications under the HDFC shareholder portion, retail portion and HDFC employee reservation portion/HDFC AMC employee reservation portion (for eligible employees only). The maximum bid amount in the HDFC shareholders’ reservation portion by an eligible HDFC shareholder cannot exceed 2 lakh.

HDFC AMC financials

According to a note from Choice Broking, HDFC AMC has been the largest asset management company (AMC) in India in terms of equity-oriented assets under management (AUMs) since 2010-11. It has consistently been among the top two AMCs in India in terms of total average AUM since August 2008, with its AUM growing at a compounded annual growth rate (CAGR) of 25.5% between 2012-13 and 2017-18.

As on 31 March 2018, HDFC AMC had a total AUM of 2.91 trillion, accounting for 13.7% of the total industry and 16.8% of actively managed equity-oriented AUM.

Equity-oriented AUM formed around 51.3% of HDFC AMC’s total AUM and was higher than the industry average of 43.2%, says the Choice Broking note. “Equity-oriented schemes generally have a higher fee structure with around 2x margins compared to non-equity-oriented schemes, which helps HDFC AMC to achieve higher profits."

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