UTI AMC IPO review (May apply)

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Review By Dilip Davda on September 25, 2020

•    UTI AMC is the second-largest AMC with a track record of 55+ years.
•    It is making a secondary offer for listing benefits and providing exit to existing stakeholders.
•    Last three fiscals financial data has shown declining trends.
•    Investors may consider an investment with a long term perspective.

PREFACE:
UTI AMC is the revamped version of UTI and is the second-largest AMC having 55+ years track record. With the adoption of new technologies and well-managed portfolio plans, it is gaining grounds. However, for the last three fiscals, it has seen inconsistency in financial performance which is attributed to certain provisioning as per guidelines of regulators. It is back on track with its FY21 Q1 performance claims management.

ABOUT COMPANY:
UTI Asset Management Company Ltd. (UTI AMC) is the second-largest asset management company in India in terms of Total AUM and the eighth largest asset management company in India in terms of mutual fund QAAUM as of June 30, 2020, according to CRISIL. As of June 30, 2020, it also had the largest share of monthly average AUM attributable to B30 cities of the top ten Indian asset management companies by QAAUM as of June 30, 2020, according to CRISIL. UTI AMC caters to a diverse group of individual and institutional investors through a wide variety of funds and services.

The company manages the domestic mutual funds of UTI Mutual Fund, provide portfolio management
Services ('PMS') to institutional clients and high net worth individuals ('HNIs'), and manage retirement funds, offshore funds and alternative investment funds. As of June 30, 2020, its total QAAUM for domestic mutual funds ('Domestic Mutual Fund QAAUM') was Rs. 1,336.3 billion, while another AUM was Rs. 8,493.9 billion. With 10.9 million Live Folios as of March 31, 2020, its client base accounts for 12.2% of the approximately 89.7 million folios that, according to CRISIL, are managed by the Indian mutual fund industry. UTIAMC's history and track record in the mutual fund industry, strong brand recognition, distribution reach, performance and client relationships provide a platform for future growth.

The company and its predecessor (Unit Trust of India) have been active in the asset management industry for more than 55 years, having established the first mutual fund in India. For purposes of the SEBI Mutual Fund Regulations, the four sponsors are the State Bank of India ('SBI'), Life Insurance Corporation of India ('LIC'), Punjab National Bank ('PNB') and Bank of Baroda ('BOB') (collectively, the 'Sponsors'), each of which has the Government of India as a majority shareholder. T. Rowe Price Group, Inc., a global asset management company, is another major shareholder (through its subsidiary T. Rowe Price International Ltd. ('TRP')).

UTI AMC has a national footprint and offers its schemes through a diverse range of distribution channels. As of June 30, 2020, its distribution network includes 163 UTI Financial Centres ('UFCs'), 257 Business Development Associates ('BDAs') and Chief Agents ('CAs') (40 of whom operate Official Points of Acceptance ('OPAs')) and 43 other OPAs, most of which are in each case located in B30 cities. Company's IFAs channel includes approximately 53,000 Independent Financial Advisors (' IFAs') as of June 30, 2020. The company believes that its BDA and CA network distinguishes from other asset management companies in India, as BDAs and CAs, who are engaged by it on an exclusive basis primarily in B30 cities, allow the company to efficiently and effectively develop, maintain and service its relationships with distributors and investors.

UTIAMC's banks and distributors ('BND') channel involves distribution arrangements with domestic and foreign banks, as well as with national and regional distributors. In addition, it has dedicated sales teams for institutional and public sector undertaking ('PSU') clients and also offer products directly through UFCs, digital applications and website. Company's distribution channels are supported by 459 relationship managers ('RMs') (as of June 30, 2020), who interact with clients and distributors and help generate new business and maintain existing relationships. Investors are also able to directly invest in its mutual funds through mobile applications for customers. It also has offices in London, Dubai, Guernsey and Singapore, through which it markets offshore and domestic mutual funds to offshore investors who seek to invest in India.

Its clients include domestic individual investors (which represented 43.8% of the total closing AUM for domestic mutual funds ('Domestic Mutual Fund Closing AUM') as of June 30, 2020), corporate and other institutional investors (which represented 45.4% of Domestic Mutual Fund Closing AUM as of June 30, 2020), and banks and other financial institutions (which represented 3.5% of Domestic Mutual Fund Closing AUM as of June 30, 2020). Trusts (5.7%) and non -resident Indians ('NRIs') (1.7%) represented the remainder of Domestic Mutual Fund Closing AUM as of June 30, 2020.

It manages 153 domestic mutual fund schemes, comprising equity, hybrid, income, liquid and money market funds as of June 30, 2020. Company's Domestic Mutual Fund QAAUM was Rs. 1,336.3 billion as of June 30, 2020, which accounted for approximately 5.4%, or the eighth largest amount, of the total QAAUM invested in all mutual funds in India as of June 30, 2020, according to CRISIL.

ISSUE DETAILS/CAPITAL HISTORY:
For listing gains and to provide an exit to existing stakeholders, UTI AMC is coming out with a maiden IPO of an offer for sale of 38987081 shares of Rs. 10 each. The issue opens for subscription on September 29, 2020, and will close on October 01, 2020. The company has fixed the price band of Rs. 552 - Rs. 554 per share. Minimum application is to be made for 27 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. UTI AMC mulls mobilizing around Rs. 2152.09 cr. - Rs. 2159.88 cr. (based on lower and upper price band) through this IPO. Issue constitutes 30.75% of the post issue paid-up capital of the company.

The company has reserved 200000 shares for eligible employees. From the residual portion, it has reserved 50% for QIBs, 15% for HNIs and 35% for retail category.

Having issued initial equity at par, the company issued further equity in the price range of Rs. 200 to Rs. 260 between August 2015 and September 2015. It has also issued bonus shares in the ratio of 4 for 1 in December 2006 and 3 for 2 in December 2007.

The average cost of acquisition of shares by the promoters/ selling stakeholders ranging from Rs. 99.76 to Rs. 200.43 per share. Post issue, UTIAMC's current paid-up equity capital of Rs. 126.79 cr. will remain the same post-issue following secondary offer. With this issue, the company is looking for a market cap of Rs. 7024.01 cr. (based on upper price band). Current paid-up equity capital stands supported by free reserves of Rs.2708.14 cr. as on June 30, 2020.

The issue is jointly lead managed by Kotak Mahindra Capital Co. Ltd., Axis Capital Ltd., Citigroup Global Markets India Pvt. Ltd., DSP Merrill Lynch Ltd. (BofA Securities), ICICI Securities Ltd., JM Financial Ltd., and SBI Capital Markets Ltd. while KFin Technologies Pvt. Ltd. is the registrar to the issue.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, on a consolidated basis, UTI AMC has posted revenue/ net profits of Rs. 1162.75 cr. / Rs. 405.09 cr. (FY18), Rs. 1080.89 cr./ Rs. 347.93 cr. (FY19) and Rs. 890.96 cr. / Rs. 275.49 cr. (FY20). Thus it has shown declining trends in income. However, for the Q1 of FY21, the company has earned a net profit of Rs. 101.08 cr. on revenue of Rs. 271.07 cr.

For the last three fiscals, on a consolidated basis, UTI AMC has posted an average EPS of Rs. 24.83 and an average RoNW of 12.02%. The issue is priced at a P/BV of 2.48 based on its NAV of Rs. 223.60 as on June 30,, 2020 (based on upper price band).

If we attribute annualize latest earnings and attribute on fully diluted equity post issue, then asking price is at a P/E of around 17.37 against industry average P/E of 38.64. However, if we attribute FY20 earnings then the issue is at a P/E of 25.49. Thus prima facie issue is fully priced based on latest earnings.

BRLM's TRACK RECORD:
The seven Book Running Lead Managers associated with this issue have handled 28 public issues in the past three years, out of which 09 issues closed below the issue price on listing date.  

COMPARISION WITH LISTED PEERS:
As per offer documents, UTI AMC has shown HDFC AMC (market cap Rs. 44746 cr.) and Nippon Life AMC (market cap Rs. 15565 cr.) as its listed peers. They are currently trading at a P/Es of 35.19 and 35.08 respectively. (As on September 25, 2020 noon).

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