BackUTI AMC IPO opens tomorrow: Key things to know before you invest
UTI AMC IPO will open on September 29 and close on October 1The mutual fund company will offer 3.8 crore of its shares in the price band of ₹552 -554
PremiumUTI AMC, the second largest asset management company (AMC) in terms of total AUM and eighth largest AMC in terms of mutual fund quarterly average AUM, will open the initial public offer (IPO) of equity shares of face value bearing ₹10 each on September 29.The IPO will remain open for subscription for three days. UTI AMC is offering 3.8 crore of its shares in the price band of ₹552 -554. Analysts believe the IPO will gain strong interest from investors.
"We believe UTI AMC will garner strong interest from an investor as AMC business is high RoE and cash-generating business. Listed AMC HDFC trades at 12.8% and Nippon AMC 9% of June AUM. Now final demand for UTI AMC would depend on at what valuation IPO demands. A valuation less than listed peers would create more demand for UTI AMC," says Jaikishan Parmar, senior equity research analyst, Angel Broking.
Lot size and probable listing date
Bid size or lot size of the UTI AMC issue is 27 equity shares and in multiples thereof. Brokerages expect the allocation in UTI AMC to be finanlised on October 7 and listing may happen on October 12.
Here are the key things to know about UTI AMC IPO before you invest:
UTI AMC IPO issue will open for subscription on September 29, Tuesday and will close on October 1. The issue aims to raise ₹2,160 crore in the upper price band. Post issue, the promoter share will reduce from 100% to 69.2%.
The UTI AMC IPO will see shareholders - State Bank of India, Punjab National Bank, Bank of Baroda, Life Insurance Corporation of India and T Rowe Price International, reduce their stake in the AMC by a total of around 30.75%. SBI, BoB and LIC will divest an 8.25% stake each, while T Rowe and PNB will sell 3% each.
According to the draft prospectus, SBI, LIC, BOB and PNB hold 18.24% each while T Rowe has a 26% stake in UTI AMC.
The objective of the offer is to achieve the benefits of listing the equity shares on the stock exchanges.
UTI mutual fund manages 153 mutual fund schemes comprising equity, hybrid, income, liquid and money market funds with a QAAUM or Quarterly Average Assets Under Management of around ₹1. 3 lakh crore as on June 2020.
Through the PMS business, UTI is one of two fund managers appointed to manage EPFO corpus and have also been appointed as a fund manager for CMPFO, ESIC and NSDF. "These appointments have resulted in strong growth in of its PMS AUM, which were at ₹6,97,050 crore as on June 2020," says ICICI Securities.
According to Crisil Research, UTI AMC had the second highest market share by AUM of PMS services in India (at 44.7%) and the second highest market share by AUM of NPS funds (at 29.2%).
Total revenue of UTI AMC stayed steady in FY17-19, at ₹1,081 crore in FY19, led by stable QAAUM. In FY20, total revenue fell 17.6% YoY to ₹891 crore, due to reduction in revenue from sale of services and lower gains on fair value changes. Q1 FY21 showed some revival. Revenue increased 11.4% YoY to ₹271 crore.
Risk factors
A substantial portion of UTI’s domestic mutual fund QAAUM is concentrated in a few schemes. "As of June 30, 2020, UTI AMCs top six active equity funds constituted ~75.3% of total QAAUM of active equity funds while top five passive equity funds constituted ~98.7% of total QAAUM of passive equity funds," says a report by ICICI Securities.
"UTI AMC’s market share has declined consistently over the past years and may continue to do so, which could have an adverse impact on the business, financial condition and results of operations," says HDFC Securities report.
"Credit risks related to the debt portfolio of funds may expose funds to significant losses, which may have a material adverse effect on the business, results of operations and financial condition," says HDFC Securities.
What analysts say
Some analysts believe that the issue is attractively priced. "UTI AMC has delivered decent returns and profit margins in the past few years with a Mcap to Equity QAAUM of 18% compared to HDFC AMC’s 29%. Additionally, this year itself it granted ESOPs at Rs. 728/share while its price band is at Rs. 552-554/share which means it leaves more money on the table for investors for listing gains," says Nirali Shah, Senior Research Analyst, Samco Securities.
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