The HDFC AMC IPO closes on Friday.
The HDFC AMC IPO closes on Friday.

HDFC AMC IPO opens today, brokerages are optimistic

At the upper end of the IPO price of 1,095-1,100, HDFC Asset Management Co. Ltd is expected to raise 2,800 crore, valuing it at 23,319 crore

Mumbai: Brokerages are optimistic about the initial public offering (IPO) of HDFC Asset Management Co. Ltd opening on Wednesday, thanks to the asset manager’s large scale operations, robust outlook, attractive returns and strong brand value.

At the upper end of the IPO price of 1,095-1,100, the company is expected to raise 2,800 crore, valuing it at 23,319 crore. The issue closes on Friday.

HDFC AMC, the second-largest asset manager in the country, is a joint venture between mortgage lender Housing Development Finance Corp. Ltd (HDFC) and Standard Life Investments Ltd.

In a note on Monday, Motilal Oswal Securities said there was a favourable perception of HDFC AMC’s brand, higher mix of high-margin equity oriented assets under management (AUM), and consistent return on equity (RoE) of around 40%.

Its AUM has grown at a CAGR of 25.5% between 31 March, 2013 and 31 March, 2018 to 2.92 trillion. Its proportion of equity-oriented AUM to total AUM was at 51.3% at the end of FY18, higher than the industry average of 43.2%. It has a wide distribution network, with 209 branches and more than 65,000 distributors, and increasing dividend payouts.

“At the upper price band, HDFC AMC is valued at 32 times FY18 EPS (earnings per share) (20% premium to its only listed peer Reliance Nippon AMC), which is justified given the strong parentage, consistent market leadership and superior growth. We recommend subscribe," Motilal Oswal analysts Siddhartha Khemka and Pooja Doshi said in the note.

HDFC Bank Ltd is the most widely tracked Indian stock, and the favourite of fund managers wanting to play the India story. HDFC AMC’s parent and mortgage lender HDFC is also on the favourites list of domestic and foreign investors.

Shares of HDFC Standard Life Insurance Co. Ltd that recently went public have also risen 65.6% since its debut on 17 November.

“We would recommend a subscribe on the IPO," R. Sreesankar, co-head of institutional equities at Prabhudas Lilladher Pvt. Ltd.

“They have reached a scale, they have strong distribution network, inflows continue to be good, SIP which is like order books for AMCs, continues to be strong," said Sreesankar.

“MF penetration is pretty low in India. Also, it does not require much of additional capital investment," he added.

Over FY14-18, it recorded revenue and net profit compounded annual growth rate (CAGR) of 19.9% and 19.2%, respectively, its draft prospectus showed.

Its dividend payout ratio increased from 41% in fiscal year 2014 to 56% in fiscal year 2018.

“It’s one of the best players in the industry. The team and management are of good repute," said Ravi Sundar Muthukrishnan, head - institutional equity research, Elara Securities (India) Pvt Ltd.

“Also, it has a big brand tag. It should definitely be subscribed to," Muthukrishnan added.