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HDFC AMC IPO Note (Subscribe)

Review By Rudra Shares & Stock Brokers Ltd on Jul 24, 2018

VALUATION

HDFCAMC has been the largest asset management company (AMC) in India in terms of equity-oriented AUM.

It has consistently been among the top two AMCs in India in terms of total average AUM since the month of Aug. 2008. As on 31st Mar. 2018, it had a total AUM of Rs 2, 91,985 crores.

Also it has been the most profitable AMC in India in terms of net profits since FY13.

Taking into consideration, its trusted brand and strong parentage, consistently delivered ROE of above 40% for last five years to FY2018, consistent profitable growth and diversified product mix distributed through a multi – channel distribution network. On the upper price band of Rs 1100 with EPS of Rs 34.1 for FY18, P/E works out at 32.2 xs, justified as Reliance Nippon is the only listed peer.

We recommend to "SUBSCRIBE" the issue for long term wealth creation.

THE OFFER

  • Issue Open: 25 July 2018 to 27 July 2018
  • Issue Type: Book Built Issue IPO
  • Issue Size: 25,457,555 Equity Shares @ 5 aggregating up to Rs 2,800.33 cr
  • Face Value: Rs 5 per Equity Share
  • Issue Price: Rs 1095- Rs 11oo per Equity Share
  • Market Lot: 13 Shares
  • Minimum Order Quantity: 13 Shares
  • Listing At: NSE, BSE

CAPITAL STRUCTURE

The share capital of Company, is set forth below (Amount in Rs except share data)

Authorized Share Capital:-

  • 600,000,000 Equity Shares @5 Aggregate values 3,000,000,000
  • 50,000,000 Preference Shares @10 Aggregate value 500,000,000

Issued, subscribed and paid up capital before the Issue:-

  • 211,988,800 Equity Shares @5 Aggregate value 1,059,944,000

Present Issue:-

  • 25,457,555 Equity Shares @5 aggregating up to Rs 2,800.33 cr

OBJECT OF THE OFFER

  • To carry out the sale of Equity Shares offered for sale by the Selling Shareholders.
  • Enhance the company's visibility and brand image.
  • Provide a public market for Equity Shares in India.

COMPANY OVERVIEW

HDFC Asset Management Company (HDFC AMC), a joint venture between Housing Development Finance Corporation (HDFC) and Standard Life Investments (SLI), is the most profitable asset management company in India in terms of net profits since FY2013 with total AUM of Rs 291985 crores as of end March 2018.

The company has been the largest asset management company in India in terms of equity-oriented AUM since the last quarter of FY2011 and consistently remains among the top two asset management companies in India in terms of total average AUM since August 2008.

HDFC AMC has recorded healthy 25.5% compounded annual growth rate (CAGR) in AUM between March 2013 and March 2018.

As at end March 2018, equity-oriented AUM constituted Rs 1, 49,713 crores and non-equity-oriented AUM at Rs 1, 42,273 crores of total AUM.

The proportion of equity-oriented AUM to total AUM was at 51.3%, which was higher than the industry average of 43.2%, end March 2018.

The market share of total AUM was 13.7% and of actively managed equity-oriented AUM (Rs 144925 crores which excludes index linked and arbitrage schemes) was 16.8% among all asset management companies in India.

The company offers a large suite of savings and investment products across asset classes, which provide income and wealth creation opportunities to its customers. As of March 31, 2018, it offered 133 schemes that were classified into 27 equity oriented schemes, 98 debt schemes (including 72 fixed maturity plans (FMPs)), three liquid schemes, and five other schemes (including exchange-traded schemes and funds of fund schemes)

As of March 2018, independent financial advisors (IFAs) generated 27.6% of total AUM, national distributors 21.0% and banks 17.3%, while the remaining 34.1% was invested in direct plans.

In terms of equity-oriented AUM, IFAs generated 39.2% of equity-oriented AUM, national distributors 24.2% and banks 19.1%, while the remaining 17.5% was invested in direct plans as of March 2018.

ROAD MAP AHEAD

Company objectives are to expand their market share and aim to accomplish this through the following strategies:

  • Maintain strong investment performance.
  • Expand reach and distribution channels.
  • Enhance product portfolio.
  • Invest in digital platforms to establish leadership in the growing digital space.

STRENGTHS

  • Consistent market leadership position in the Indian mutual fund industry.
  • Trusted brand and strong parentage.
  • Strong investment performance supported by comprehensive investment philosophy and risk management.
  • Superior and diversified product mix distributed through a multi-channel distribution network.
  • Focus on individual customers and customer centric approach.
  • Consistent profitable growth

FINANCIAL HIGHLIGHTS

The total revenue increased from Rs 903.11 crores in FY2014 to Rs 1867.25 crores in FY2018, with a CAGR of 19.9%.

Net profit has grown from Rs 357.77 crores to Rs 721.62 crores during the same period at a CAGR of 19.2%.

Dividend Payout Ratio increased from 41% in FY2014 to 56% in FY2018 and paid a dividend of Rs 336.89 crores in FY2018 compared to Rs 126.20 crores in FY2014.

The net worth of the company stood at Rs 2159.97 crores as of March 2018.

Return on average net worth exceeded 40% every year since FY2014 and was 40.28% for FY2018.

Net cash flow from operating activities increased from Rs 454.8 crores in Fiscal 2017 to Rs 620 crores in Fiscal 2018, with a CAGR of 31.2% in FY14-18.

Depreciation & amortization charges increased by 7.9% CAGR, while other income increased by 24.6% CAGR during FY14-18.

RISK FOR THE BUSINESS

  • Market fluctuations could affect business in many ways, by reducing the value of AUM, decline in investment management fees, portfolio management fees services, reducing systematic transactions causing customers to withdraw their investments, each of which could materially affect business prospects.
  • Impact of changes to the regulations on the Total Expenses Ratio (TER) for Schemes, could adversely impact business.
  • Data privacy laws, rules and regulations could have a material adverse effect on business.
  • Company is required to comply with certain obligations under SEBI (Mutual Funds) Regulations and other applicable SEBI Regulations.
  • Weaknesses, disruptions or failures in, information technology systems could have a material adverse effect on
  • The mutual fund business in India may be adversely affected by changes to the present favorable tax regime.

Conclusion / Investment Strategy

Taking into consideration, its trusted brand and strong parentage, consistently delivered ROE of above 40% for last five years to FY2018, consistent profitable growth and diversified product mix distributed through a multi – channel distribution network. On the upper price band of Rs 1100 with EPS of Rs 34.1 for FY18, P/E works out at 32.2 xs, justified as Reliance Nippon is the only listed peer.

We recommend to "SUBSCRIBE" the issue for long term wealth creation.

Review By Rudra Shares & Stock Brokers Ltd on Jul 24, 2018

Review Author

Rudra Shares & Stock Brokers Ltd.

Rudra Shares & Stock Brokers Ltd. is Kanpur based brokerage houses offering services to Retail and HNI customers. Rudra Shares offer a range of financial services which includes institutional and retail brokerage of Equity, Currency, Commodities, Derivatives, Online Trading, Depository Services, Fixed Deposits, IPOs and Mutual Funds Distribution, Wealth Advisory and Research.

More HDFC Asset Management Company Limited IPO Views / Analysis / Recommendations ...

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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