HDFC Asset Management Company - IPO

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HDFC Asset Management Company (HDFC AMC) Limited is coming out with Offer for sale (OFS) of 2.5 crore shares having the face value of Rs. 5 each. The offer will open from June 25, 2018, and will close on July 27, 2018. The price band for the OFS issue is Rs. 1,095 to Rs. 1,100 and the minimum lot size is 13 shares, which implies a minimum investment in the range of Rs. 14,235 to Rs. 14,300.


The issue size is Rs. 2,800 crore of which the retail portion is 30 percent, with 7,762,145 equity shares on offer.


As the offer is an OFS, the company will not receive any proceeds from the same, but the company's brand will gain visibility.
Key growth drivers for the company - 


1. Rising share in individual equity-oriented AUM which have better margins and consistent income.

Company has been able to benefit from higher individual participation witnessed in Mutual fund industry. It has a greater proportion of individual AUM in comparison to the overall Indian mutual fund industry. As of December 31, 2017, MAAUM from individual customers accounted for 62.2% of MAAUM of HDFC AMC compared to 50.6% in the mutual fund industry in India. This will help the company as more investors opt for the SIP route of investments, following rising awareness about financial planning. This should benefit the company in the long run.


Also the equity-oriented schemes attract higher management fees and hence provide better margins to the company. The current mix of equity schemes in terms of AUM is higher and provides better profitability for the company. 


2. Growing footprint in underpenetrated B-15 cities

Company has been seeing higher growth in B-15 cities as its AUM has grown at a rate of 34.2% between March 2014 and December 2017. As financial inclusion initiative by government gains traction, we expect high growth in B-15 cities to sustain. 


3. Digital platform - 

HDFC MF online to help reach largely under-penetrated areas



4. Higher market share

As of December, HDFC Mutual Fund had the highest market share (16%) among individual investors’ assets, followed by ICICI Prudential Mutual Fund (14.7%) and Aditya Birla Sun Life Mutual Fund (9.9%). The top five AMCs together had a 58.6% share in individual investors’ AUM. Also its revenue share stands at 13.5% vs Reliance Nippon 11.9% and ICICI Pru at 11.5%.


5. Valuation 


HDFC AMC and Reliance Nippon are close competitors in the industry. We see that Reliance Nippon life had its IPO offer price as Rs. 252, but has corrected post listing. We see higher dependency on market movement as a key risk that deters subscribers from participating in an IPO. Also, HDFC AMC appears to be offered at a higher price when compared to Reliance Nippon Life on the basis of P/E ratio. However, we believe HDFC AMC has better brand visibility and trust, coupled with markets which are sentimentally expected to be better over the next couple of years.

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