Review By Dilip Davda on Jul 18, 2018
HDFC Asset Management Company (AMC) LTD (HDFC-AMC) has been the most profitable asset management company in India in terms of net profits since Fiscal 2013, according to CRISIL. It had a total AUM of Rs. 2919.85 billion as of March 31, 2018. Its profits have grown every year since the first full year of operations in Fiscal 2002. HDFC AMC has been the largest asset management company in India in terms of equity-oriented AUM since the last quarter of Fiscal 2011 and has consistently been among the top two asset management companies in India in terms of total average AUM since the month of August 2008, according to CRISIL.
HDFC AMC enjoys trusted brand and strong parentage and thus has consistent market leadership position in the Indian Mutual Fund Industry. Its innovative and well diversified product mix meets the needs of customer’s preferences.
As of March 31, 2018, its equity-oriented AUM and non-equity-oriented AUM constituted Rs. 1497.13 billion and Rs.1422.73 billion, respectively, of the total AUM. Between March 2013 and March 2018 its AUM has grown at a CAGR of 25.5%. HDFC AMC’s proportion of equity-oriented AUM to total AUM was at 51.3%, which was higher than the industry average of 43.2%, as of March 31, 2018, according to CRISIL. As equity-oriented schemes generally have a higher fee structure compared to non-equity-oriented schemes, according to CRISIL, our product mix helps the company to achieve higher profits.
For listing benefits and unlocking the value for its stakeholders, HDFC-AMC is coming out with a maiden IPO of 25457555 equity shares of Rs. 3 each via book building route. It has fixed a price band of Rs. 1095-Rs. 1100 and mulls mobilization of Rs. 2787.60 cr. to Rs. 2800.33 cr. based on lower and upper price bands. Issue opens for subscription on 25.07.18 and will close on 27.07.18. Minimum application is to be made for 13 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE/NSE. Entire issue is by way of offer for sale by existing shareholders. HDFC is offering 8592970 shares and Standard Life is offering 16864585 shares. Out of the total issue, it has reserved 320000 shares for eligible employees of HDFC AMC, 560000 shares for HDFC employees and 2400000 shares for HDFC shareholders. Thus net offer for the public is 22177555 equity shares. Issue constitutes 12.01% of the post issue paid up equity capital of the company. BRLMs to this offer are Kotak Mahindra Capital Co. Ltd., Axis Capital Ltd., DSP Merrill Lynch Ltd., Citigroup Global Markets India Pvt. Ltd., CLSA India Pvt. Ltd., HDFC Bank Ltd., ICICI Securities Ltd., IIFL Holdings Ltd., JM Financial Ltd., J. P. Morgan India Pvt. Ltd., Morgan Stanley India Pvt. Ltd. and Nomura Financial Advisory and Securities (India) Pvt. Ltd. Karvy Computershare Pvt. Ltd. is the registrar to the issue. HDFC Shareholders whose names are appearing as on 14th March 2018 (filing of DRHP) are eligible for this quota. Having issued initial equity at par, it raised further equity in the price range of Rs.85 to Rs. 2039 per share (on the basis of FV of Rs. 5) between June 2003 and April 2018. It also did buybacks at hefty pricing during these periods. In February 2018 it issued bonus shares in the ratio of 3 shares for every 1 share held. Average cost of acquisition of shares by the promoters is Rs. 15.01 and Rs. 19.53 per share. Issue is priced at a P/BV of 10.72 based on its NAV of Rs. 102.58 as on 31.03.18. Post issue HDFC’s shareholding will stand reduced to 52.92% from 56.97% and that of Standard Life at 30.03% from 37.98%.
HDFC AMC has an established track record of delivering robust financial performance. Its total revenue increased from Rs. 903.11 cr. in FY14 to Rs. 1867.25 cr. in FY18 with a CAGR of 19.91%, and net profits has grown from Rs. 357.77 cr. to Rs. 721.62 cr. for the same period at a CAGR of 19.17%. Its Dividend Payout Ratio increased from 41% in Fiscal 2014 to 56% in Fiscal 2018 and has paid a dividend of Rs. 336.89 cr. for FY18 compared to Rs. 126.20 cr. for FY14. As on 31.03.18 its net worth was Rs. 2159.97 cr. Its return on average net worth exceeded 40% every year since Fiscal 2014 and was 40.28% for Fiscal 2018. As on 31.03.18, its equity capital of Rs. 105.28 cr. is supported by free reserves of Rs. 2054+ crore. Being secondary offer, its post issue paid up equity capital remains same at Rs. 105.99 cr. Issue price at the upper band is at a P/E of around 32. For last three fiscals HDFC AMC has posted an average EPS of Rs. 30.42 and average RoNW of 36.51%. As per offer documents, it has shown Reliance Nippon Life AMC as its listed peers that is currently trading at a P/E of around 26 (as on 18.07.18). HDFC AMC is way ahead of its listed peers on many counts except other income. Thus although this issue appears fully priced, HDFC groups fancy among investors across the board, brand image and rewards to stakeholders are at center stage. MF industry set for a big boom ahead and this second largest player set for bright prospects going forward.
On BRLM’s front, 12 merchant bankers associated with the issue have handled 61 public issues in the past three years, out of which 18 issues closed below the issue price on listing date.
MF Industry in India is at 11% of GDP as per last fiscal reports against world average of around 32%. Advance countries have 60% to 100% of their GDPs in MF investment. Post demonatization, this industry got preference as the investment option among larger masses. MF Industry in India is set to grow in double digits for coming 5-8 years and HDFC AMC being most preferred private sector MF is set for bright prospects. Thus although prima facie it is fully priced, group’s fancy among investors across the board and outperforming track record of HDFC AMC, makes this issue a worthy bet for medium to long term.
Review By Dilip Davda on Jul 18, 2018
DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.
(SEBI registered Research Analyst-Mumbai).
About Dilip Davda
Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.
Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.
The HDFC AMC IPO Analysis helps you to understand about the company, offer detail, valuation, capital structure and financial performance. Our SEBI registered IPO Analysts tells you if HDFC AMC IPO worth investing. The HDFC AMC IPO Note sets the IPO expectations in systematic way which tells you if HDFC AMC IPO good to buy (good or bad / yes or no). The IPO Forecast tells you weather to invest in HDFC AMC IPO by providing IPO recommendations i.e. subscribe, avoid and neutral.
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