Mumbai: Reliance Nippon Life Asset Management Ltd, India’s third-largest mutual fund manager, opens its Rs1,542 crore initial public offering (IPO) on Wednesday. Analysts have recommended subscribing to the IPO with a long-term view.
The Reliance Nippon AMC IPO has set a price band of Rs247-252 per share, at the upper end of which the mutual fund manager is valued at Rs15,442 crore—7.8 times its financial year 2017 P/B (price to book) value of 32.2.
Reliance Nippon AMC’s diversified portfolio and early start will benefit the company as more investors sign up for mutual funds in India, analysts said.
Brokerage Asit C. Mehta Investment Interrmediates Ltd called the Reliance Nippon AMC IPO fairly priced, and recommended subscribing to the issue on a long-term basis. “With increasing household savings and financial awareness, there is gradual shift from physical saving to financial saving," its analysts said in an 18 October note.
Further, with demonetisation, the implementation of Real Estate (Regulation and Development) Act (Rera) and rollout of the goods and services tax (GST), the value of real estate and gold as investment options has reduced, they added. “Given the under-penetrated nature of MF industry, coupled with first-mover advantage followed by well-diversified suite of products and multichannel distribution network, we believe the company is set to benefit in the long run."
Others shared the view.
“We like RNLAM (Reliance Nippon Life Asset Management) as it is the largest AMC with highly diversified product offerings and strong distribution reach," Motilal Oswal Securities Ltd said in an 18 October note.
They pointed out that Reliance Nippon AMC’s assets under management (AUM) has grown at a compounded annual growth rate of 22% in 2013-17, and it has delivered strong revenue and net profit growth of 21% and 15% over the same period. “Other key strengths of the company are leadership positioning in the AMC business with strong credentials to drive growth, strong distribution reach, diversified product mix with strong investment track record, and strong ROE (return on equity)/ROCEs (return on capital employed) of 22%/25%."
In the Reliance Nippon AMC IPO, promoters Reliance Capital and Nippon Life will collectively sell 36.72 million shares, which, at the upper end of the price band, will fetch Rs925 crore. Reliance Capital will sell shares worth Rs283 crore while Nippon Life will offload shares worth Rs642 crore.
The public offering also includes a fresh issue of Rs617 crore. Its proceeds will be used for branch expansion, upgrading technology and advertising, among others.
The share of mutual funds in net financial savings has risen from 1.35% in financial year 2012 to 2.94% in financial year 2016, the company’s draft offer document said, citing data compiled by the ministry of statistics and programme implementation.
While fixed deposits make up the major chunk of financial savings for Indians, the trend has been changing due to softening interest rates. Indian mutual funds industry’s assets under management hit a record Rs20.6 trillion in August, as falling fixed deposit rates prompted investors to move money to equity funds.
Reliance Nippon AMC had a market share of 11.4% as of June 30 and its quarterly average assets under management was Rs2.23 trillion with 7.01 million investor folios.