HDFC AMC IPO Review, Current GMP and List of Anchor Investors

HDFC Asset Management Corporation (HDFC AMC) coming up with an IPO. The company got SEBI’s nod for the initial public offer. The company incorporated in 1999 based in Mumbai. HDFC Mutual Fund is asset management company which provides services in savings and investments. The company is JV between Housing Development Finance Corporation Limited (“HDFC”) and Standard Life Investments Limited (“SLI”). HDFC is a bigger name in finance and housing market. The company is doing well in India and the coming years will be good for the company as per the financial results. It caters various products portfolio covering five principal segments across the individual and group categories, namely participating, non-participating protection term, non-participating protection health, other nonparticipating and unit-linked insurance products. HDFC Standard life has 66,372 individual agents along with 414 branches across India.

HDFC AMC offers a wide range of savings and investment products across asset classes. As of December 31, 2017, it offered 127 schemes categorized into-

  • 28 equity-oriented schemes
  • 91 debt schemes
  • 3 liquid schemes
  • 5 other schemes (including exchange-traded schemes and funds of fund schemes).

The company also provides portfolio management and segregated account services to HNIs, family offices, trusts, domestic corporates and provident funds etc. As of December 31, 2017, it managed a total AUM of ₹75.78 billion as part of its portfolio management and segregated account services’ business.

HDFC AMC raises Rs 732 cr from anchor investors.

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HDFC MF
Outlook of the Firm:

Strong support from established parentage and trusted brand i.e. HDFC, Standard Life;

Reliable and consistent financial performance growth;

Focus towards multi-channel distribution footprint to access the customers;

Leading digital platform which helps customers and distributors.

IPO Dates & Price Band:

IPO Open: 25-July-2018
IPO Close: 27-July-2018
IPO Size: Approx Rs.2800 Crore (Approx)
Face Value: Rs.5 Per Equity Share
Price Band: Rs. 1095 to 1100  Per Share
Listing on: BSE & NSE
Retail Portion: 35%
Equity: 25,457,555 Shares

Market Lot:

Shares: Apply for 13 Shares (Minimum Lot Size)
Amount: Rs.14,300

IPO Allotment & Listing:

Basis of Allotment: 01-August-2018
Refunds: 02-August-2018
Credit to demat accounts: 03-August-2018
Listing: 06-August-2018

Registrar:

Karvy Computershare Private Limited

Lead Managers:

Axis Capital Limited
BoA Merrill Lynch
Citigroup Global Markets India Private Limited
CLSA India Private Limited
HDFC Bank Limited
ICICI Securities Limited
IIFL Holdings Limited
J.P. Morgan India Private Limited
JM Financial Consultants Private Limited
Kotak Mahindra Capital Company Limited
Morgan Stanley India Company Pvt Ltd
Nomura Financial Advisory And Securities (India) Pvt Ltd

Promoters Of the Company:

Housing Development Finance Corporation Limited,
Standard Life (Mauritius Holdings) 2006 Limited,
Standard Life Aberdeen PLC

Objects Of The Issue:-

To avail the benefits of listing the Equity Shares on the Stock Exchanges and;
To carry out the sale of Offered Shares by the Selling Shareholders.

HDFC SHAREHOLDER

Qualitative factors

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; and

Experienced and stable management and investment teams.

HOUSE HOLD SAVINGStrong growth is foreseen in household financial savings

India has historically been and is expected to remain a savings economy. The gross domestic savings rate (as a percentage of GDP) is higher than those of major economies such as the US, the UK, France, Japan and Germany.

As of 2016, India’s gross domestic savings rate stood at 29%, compared with the global average of 25%. Household savings in India has witnessed growth from ₹20.7 trillion in Fiscal 2012 to ₹24.8 trillion in Fiscal 2017, although its share as a percentage of GDP remained subdued during the period. The past two years have seen a quantum spurt in investments into capital markets, with the household allocation to shares and debentures increasing from 2% in Fiscal 2015 to 10% in Fiscal 2017 as well as a sharp increase in the mutual fund assets under management (“AUM”).

MFAUM AS PER GDPFor the period April 2015 to December 2017, the individual investors’ AUM grew at a CAGR of 33% to ₹11.4 trillion. In Fiscal 2018, CRISIL Research expects CPI inflation to fall further and average 4%. Over the long term, too, the RBI is committed to keeping inflation low and range-bound. Lower inflation gives an impetus to overall savings, as people can save more. CRISIL Research expects financial savings to increase with the government’s strong stance against black money and diminishing attractiveness of real estate and gold, along with improvement in financial education among households and measures taken towards financial inclusion.

SAVING

Reliance Nippon Life Asset Management ( First MF ) IPO Review

Current scenario

Robust AUM growth since Fiscal 2013, due to the rising individual investors’ participation and equity market.

Mutual funds have emerged as a strong counterweight to foreign institutional investors (“FIIs”)

Systematic Investment Plans (“SIPs”) book size has doubled since April 2016

Other revenue streams

Portfolio management services

Alternative investment funds

Offshore management /advisory services

INDIAGrowth Drivers

Equity mutual funds are perceived as long-term wealth creators.

Financial inclusion, investor education and investor-friendly regulations to boost mutual fund penetration.

Growing awareness can boost acceptability of mutual funds as an investment vehicle.

Spending on investor awareness rising.

Regulations to incentivise investments in smaller cities

Retirement money can be a big impetus

Tax benefits on equity-linked savings scheme (“ELSS”) a huge draw

Guidelines on a categorisation of schemes to make investing easier

Technology to be a key enabler for growth

Instant access facility a viable alternative to a savings account

EQUITY AUM

Key Challenges

Low level of financial awareness

Competition from other financial instruments

Retail expansion at a reasonable cost

EQUITY AUM TOP10Negative

There are outstanding proceedings against us, Promoters, Directors and Group Companies and any adverse outcome in any of these proceedings may adversely affect its profitability and reputation and may have an adverse effect on its business, results of operations and financial condition.

Adverse market fluctuations and/or adverse economic conditions could affect its business in many ways, including by reducing the value of our AUM, causing a decline in its investment management fees, portfolio management fees or fees from advisory services, reducing its systematic transactions, and causing its customers to withdraw their investments, each of which could materially reduce and adversely affect its revenue, business prospects, financial condition and results of operations.

If its investment products underperform, its AUM could decline and adversely affect its revenues, reputation and brand.

HDFC AMC AUM may be constrained by the unavailability of appropriate investment opportunities or if we close or discontinue some of its schemes, products and services.

ICICI Sec. IPO Review and the list of anchor investors

HDFC AMC’s historical growth rates may not be indicative of its future growth and if we do not manage its growth effectively, its financial performance could be adversely affected.

Failure to continue with its existing distribution relationships or to secure new distribution relationships may have a material adverse effect on its competitiveness, financial condition and results of operations.

HDFC AMC rely on third-party service providers in several areas of its operations and may not have full control over the services provided by them to us or to its customers.

If its techniques for managing risk are ineffective, HDFC AMC may be exposed to material unanticipated losses.

MF SCHEME

HDFC AMC may not be able to implement its growth strategies.

Any concentration in its investment portfolio could have a material adverse effect on its business, financial condition and results of operations.

HDFC AMC is dependent on the strength of its brand and reputation, as well as the brand and reputation of other HDFC group entities and Standard Life Investments group companies.

HDFC AMC face competition from other asset management companies, alternative investment funds and other companies providing portfolio management and segregated accounts services and from alternate investments products available in the market.

HDFC AMC’s business would suffer if we lose the services of its key management and other personnel and we are unable to adequately replace them.

HDFC AMC may have negative cash flows.

Valuation

Revenues of the company have increased at CAGR of 20% from Rs 858.55 crore in FY2014 to Rs 1759.75 crore in FY2018. The company has posted healthy 19% CAGR growth in net profit to Rs 721.62 crore in from FY2018 from Rs 357.77 crore in FY2014.

The company has consistently delivered RoE of above 40% for last five years to FY2018.

Post-issue valuation is Rs 23319 crore at the upper price band of Rs 1100 per share and Rs 23213 crore at the lower price band of Rs 1095 per share.

EPS for FY2018 works out to Rs 34.04 on post-IPO equity basis. The scrip is offered at P/E multiple of 32.3 times FY2018 EPS at the upper price band.

The post-issue book value (BV) is Rs 101.9. The scrip is offered at a P/BV multiple of 10.8 times at the upper price band of Rs 1100 per share.

The recently listed peer company, Reliance Nippon Life Asset Management Company is trading at P/E multiple of 25.4 times FY2018 EPS and a P/BV multiple of 5.8 times. Reliance Nippon Life AMC is the fourth largest mutual fund in India with average AUM of Rs 244903.56 crore end March 2018, which has recorded RoE of above 24% for last three years to FY2018.

Conclusion:

The company posted revenue of 19% CAGR in the last 5 years. It earns decent profits. However, its issue price is highly priced. I would have been excited if the issue price was on the lower side. Considering its brand in the mutual fund business and positive factors, investors can invest in this IPO for 4-5 year tenure.

Grey market premium:

GMP as on 25 July 2018 @ 18.00 is Rs.460 /- to 465/- , Kostak Rs.1650/- 
GMP has remained steady for whole day.

 

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 before making any actual investment decisions, based on information published here

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