The initial public offer (IPO) of HDFC Asset Management Company (AMC) opens today for subscription. The issue, which remains open till July 27, comprises of up to 25457555 equity shares of face value of Rs 5 each. The price band for the offer is fixed at Rs 1,095 - 1,100 per share.
Also Read: HDFC Mutual Fund allots Rs 7.3 billion shares to anchor investors
The IPO is entirely an offer for sale of 25.5 million shares belonging to HDFC and Standard Life Investment. HDFC and Standard Life are paring 4.05 per cent and 7.96 per cent stake, respectively, in the IPO.
HOW TO APPLY
Bids can be made for a minimum lot of 13 equity shares and in multiples of 13 equity shares thereafter. HDFC AMC aims to raise Rs 27.87 billion at the lower end of this price band and Rs 28 billion at the higher end.
Also Read: Sebi warns heads of asset management companies against 25 violations
SHOULD YOU APPLY?
So, should you subscribe to the issue of one of the largest AMC in the country? Here is what leading brokerages suggest.
EMKAY GLOBAL
HDFC AMC has priced IPO at around 7.8 per cent of total FY18 AUM. The only peer comparison is Reliance Nippon AMC (RNAM), which issued IPO at around 6.3 per cent of FY18 AUM. However, with the subsequent correction in pricing, Reliance Nippon's share is currently trading at around 5.5 per cent of FY18 AUM (around 26.1x P/FY18 earnings). Considering its superior return ratios, a favourable AUM mix and relatively stable management profile, HDFC AMC is expected to command a premium over peers. We recommend SUBSCRIBE to the IPO.
Also Read: A leader at reasonable price: HDFC AMC IPO to hit market on Wednesday
ANGEL BROKING
At the upper end of the IPO price band, it is offered at 32x its FY2018 EPS and 11x its FY2018 book value, demanding Rs 233.18 billion market capitalisation, which is 7.6 per cent of the MF AUM (Rs 3.06 trillion for the month of June 2018). Considering that HDFC AMC is the second largest AMC coupled with huge potential of MF industry growth, strong return ratios, asset light business, higher dividend payout ratio and track record of superior investment performance, we are positive on this IPO and rate it as SUBSCRIBE.
MOTILAL OSWAL RESEARCH
Favourable perception of HDFC AMC’s brand, higher mix of high-margin equity oriented AUM, consistent return on equity (RoE) of around 40 per cent, a wide distribution network (209 branches and over 65,000 distributors), and increasing dividend pay-outs work in HDFC AMC’s favour. At the upper price band, HDFC AMC is valued at 32x FY18 EPS (20 per cent premium to its only listed peer Reliance Nippon AMC), which is justified given the strong parentage, consistent market leadership and superior growth. We recommend SUBSCRIBE.
GEOJIT FINANCIAL
Aid by its strong distribution network and market outperformance, HDFC AMC’s AUM had grown at 28 per cent CAGR over FY14-18. As a result HDFC AMC was consistent in its financial performance with about 20 per cent CAGR in revenue, EBITDA & PAT during FY14-18. According to CRISIL, MF industry in India is expected to show an AUM growth of 19 per cent CAGR over FY18-23E backed by pick-up in economy, growing investor base, higher disposable income, lower penetration and under-representation of MFs as an asset class.
Also Read: HDFC Life stock gains 3.9%; improvement in first quarter priced in
At upper price band of Rs 1,100 the issue is valued at FY18 P/E of 32x and 8 per cent of AUM, which we believe is justified on account of favourable view on HDFC’s brand, higher mix of high-margin equity assets than the industry average, consistent RoE of 40 per cent in the recent past work in the company’s favour. We recommend “Subscribe” to the issue with a long term perspective.
IDBI CAPITAL
HDFC AMC has been the most profitable asset management company in India in terms of net profit since FY13. With a total AUM of Rs 2,919 billion as of March 2018, it commands a market share of 13.7 per cent in the industry.
It is a play on fundamental transformation in the Indian savings environment. HDFC AMC's total revenue has grown at a compounded annual growth rate (CAGR) of 19.9 per cent, during FY14-18 and the net profit has grown during the same period at a CAGR of 19.2 per cent. IPO is priced at a P/E of 31x and P/AUM of 8x on FY18 numbers. Given the growth prospects and brand valuation as against peers, we recommend subscribe to the issue.
Also Read: HDFC Mutual Fund allots Rs 7.3 billion shares to anchor investors
The IPO is entirely an offer for sale of 25.5 million shares belonging to HDFC and Standard Life Investment. HDFC and Standard Life are paring 4.05 per cent and 7.96 per cent stake, respectively, in the IPO.
HOW TO APPLY
Bids can be made for a minimum lot of 13 equity shares and in multiples of 13 equity shares thereafter. HDFC AMC aims to raise Rs 27.87 billion at the lower end of this price band and Rs 28 billion at the higher end.
Also Read: Sebi warns heads of asset management companies against 25 violations
SHOULD YOU APPLY?
So, should you subscribe to the issue of one of the largest AMC in the country? Here is what leading brokerages suggest.
EMKAY GLOBAL
HDFC AMC has priced IPO at around 7.8 per cent of total FY18 AUM. The only peer comparison is Reliance Nippon AMC (RNAM), which issued IPO at around 6.3 per cent of FY18 AUM. However, with the subsequent correction in pricing, Reliance Nippon's share is currently trading at around 5.5 per cent of FY18 AUM (around 26.1x P/FY18 earnings). Considering its superior return ratios, a favourable AUM mix and relatively stable management profile, HDFC AMC is expected to command a premium over peers. We recommend SUBSCRIBE to the IPO.
Also Read: A leader at reasonable price: HDFC AMC IPO to hit market on Wednesday
ANGEL BROKING
At the upper end of the IPO price band, it is offered at 32x its FY2018 EPS and 11x its FY2018 book value, demanding Rs 233.18 billion market capitalisation, which is 7.6 per cent of the MF AUM (Rs 3.06 trillion for the month of June 2018). Considering that HDFC AMC is the second largest AMC coupled with huge potential of MF industry growth, strong return ratios, asset light business, higher dividend payout ratio and track record of superior investment performance, we are positive on this IPO and rate it as SUBSCRIBE.
MOTILAL OSWAL RESEARCH
Favourable perception of HDFC AMC’s brand, higher mix of high-margin equity oriented AUM, consistent return on equity (RoE) of around 40 per cent, a wide distribution network (209 branches and over 65,000 distributors), and increasing dividend pay-outs work in HDFC AMC’s favour. At the upper price band, HDFC AMC is valued at 32x FY18 EPS (20 per cent premium to its only listed peer Reliance Nippon AMC), which is justified given the strong parentage, consistent market leadership and superior growth. We recommend SUBSCRIBE.
GEOJIT FINANCIAL
Aid by its strong distribution network and market outperformance, HDFC AMC’s AUM had grown at 28 per cent CAGR over FY14-18. As a result HDFC AMC was consistent in its financial performance with about 20 per cent CAGR in revenue, EBITDA & PAT during FY14-18. According to CRISIL, MF industry in India is expected to show an AUM growth of 19 per cent CAGR over FY18-23E backed by pick-up in economy, growing investor base, higher disposable income, lower penetration and under-representation of MFs as an asset class.
Also Read: HDFC Life stock gains 3.9%; improvement in first quarter priced in
At upper price band of Rs 1,100 the issue is valued at FY18 P/E of 32x and 8 per cent of AUM, which we believe is justified on account of favourable view on HDFC’s brand, higher mix of high-margin equity assets than the industry average, consistent RoE of 40 per cent in the recent past work in the company’s favour. We recommend “Subscribe” to the issue with a long term perspective.
IDBI CAPITAL
HDFC AMC has been the most profitable asset management company in India in terms of net profit since FY13. With a total AUM of Rs 2,919 billion as of March 2018, it commands a market share of 13.7 per cent in the industry.
It is a play on fundamental transformation in the Indian savings environment. HDFC AMC's total revenue has grown at a compounded annual growth rate (CAGR) of 19.9 per cent, during FY14-18 and the net profit has grown during the same period at a CAGR of 19.2 per cent. IPO is priced at a P/E of 31x and P/AUM of 8x on FY18 numbers. Given the growth prospects and brand valuation as against peers, we recommend subscribe to the issue.
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