Three people aware of the talks between L&T Finance--parent of L&T Mutual Fund--and the potential buyers confirmed this, saying that apart from the three asset management companies in the fray, at least three investment firms have also evinced interest in buying a minority stake in in the fund house.
Avendus Capital and private equity players including New York-based Blackstone Group and ChrysCapital have been in discussions to buy 10-15% stake in L&T Mutual Fund, according one of the people cited above. The person said the investment rationale is driven by the potential of a profitable exit opportunity whenever the fund house is listed though a share sale.
As of now, only two asset management companies (AMCs) are listed on the stock exchanges: HDFC Mutual Fund and Nippon India Mutual Fund (erstwhile Reliance Nippon Asset Management).
"AMCs are available at low valuations now. So the prospects of exiting investment with a relatively much higher valuation in the event of listing exists, which is attracting PE players," said the person.
An L&T spokesperson said, “We do not comment on speculation."
According to data provided by Value Research Online, a Delhi-based MF tracker, L&T MF had 31 schemes with net asset of ₹58,147 crore at the end of May. The fund house has 16 equity schemes, with net asset under management (AUM) of ₹29,823.85 crore, according to Value Research. These include L&T Nifty 50 Index Fund ( ₹28.64 crore) and L&T Nifty Next 50 Index Fund ( ₹15.46 crore). Value Research compiles data on the basis of fund factsheets filed by AMCs.
L&T Finance acquired its mutual fund business in two parts: first by acquiring DBS Cholamandalam Asset Management in 2009 and then by acquiring the Indian operations of Fidelity Investments in 2012.
According to AMFI, for the March quarter, L&T had an average AUM of ₹71,056 crore, IIFL Asset Management Co. Ltd. had an average AUM of 1,832.44 crore, Axis Mutual Fund recorded an AUM of Rs. 1.38 trillion and ICICI Prudential Mutual Fund had an average AUM of Rs. 3.51 trillion.
Axis MF and ICICI Prudential MF said AMCs "do not comment on market speculation". Blackstone and Avendus also declined comment.
"We continuously examine new opportunities as per our regular business operations and have nothing specific to share on this," said an IIFL spokesperson.
Citigroup Global Markets and JP Morgan have been appointed as the merchant banks for the sale of L&T Mutual Fund, said the another of the three people cited above.
“L&T Capital received four bids in March. Due to covid-19 and the lockdown, MF valuations have taken a massive hit. L&T MF is not willing to sell at these depressed valuations and the bidders want to revise their offer price...but the uncertainty is pushing the sale process," said the second person.
MF valuations remain a tricky process in India, even after the listing of HDFC MF and Nippon India MF. Ideally, listed AMCs should have provided the industry indicative guidance on price discovery. However, with two dissimilar AMCs listed, the traded share prices are not reliable indicators.
In India, mutual fund buyers typically tend to value AMCs on the basis of the AUM, with equity assets fetching the highest valuation followed by debt and then liquid funds. The other problem is deal opacity. With most AMCs unlisted, the real transaction price remains a closely-guarded secret.
According to a 30 September report by ICICI Direct Research, RNAM, whose market cap was Rs. 15,900 crore on 30 September 2019, was valued at 7% of AUM in FY19, which came down to 6.2% of AUM in FY20, and is expected to be 5.4% for FY21.
The value of HDFC AMC was at ₹54,545 crore in September. The valuation as a percentage of AUM was 16.3% in FY19, which came down to 14.6% for FY20 and is estimated to be 12.4% for FY21, said ICICI Direct Research.