UTI AMC IPO opens tomorrow!

Last updated: 28 Sep, 2020 | 02:06 pm

UTI AMC IPO opens tomorrow!

UTI AMC is set to raise up to ₹2,160 crore via IPO which opens on 29th September, Tuesday. Here are the details.

About UTI AMC

  • UTI AMC is the 2nd asset manager in India in terms of total AUM and the 8th largest Asset Management Company in terms of mutual fund QAAUM as of June 2020. 
  • UTI AMC's total QAAUM for domestic mutual funds was Rs 1.34 lakh crore, while other AUM was Rs 8.49 lakh crore. This includes UTI’s PMS business (AUM of Rs 6.97 lakh crore as on June 30), and alternative investment and offshore funds aggregating to Rs 1.52 lakh crore.
  • With 1.09 crore live folios as of March 2020, its client base accounts for 12.2% of the approximately 8.97 crore folios that are managed by the Indian mutual fund industry.
  • As of June 30, 2020 UTI AMC also had the largest share of the monthly average AUM attributable to B30 cities of the top 10 Indian asset management companies by QAAUM. Nearly one-fourth of the company’s AUM comes from Beyond the top 30 cities.
  • UTI AMC caters to a diverse group of individual and institutional investors through a wide variety of funds and services.

Peers

  • “UTI’s AAUM market share is down from 8.2% in FY14 to 5.4% in June-20 among domestic mutual funds. The fund house has seen a big drop in AUM of debt funds due to the turmoil in the debt market.” The table below shows UTI’s AAUM as of June-20 and its market share.

Financials

  • “UTI AMC’s profit has declined at a CAGR of 11% between FY17 and FY20, while the revenues declined by about 6% in the period. The firm’s operating profit margin at 40% for FY20 is the lowest compared to listed peers, such as HDFC AMC (78%) and Nippon Life (47%).”
  • UTI AMC’s has posted a 20% YoY decline in profit to ₹276 crore in FY20. Revenues were down by about 18.6% on-year to ₹854.97 crore. 
  • The fall in profit was mainly due to reductions in revenue from the sale of services and lower net gains on fair value changes, partly offset by a decrease in scheme expenses and management fees.
  • UTI AMC Cost/ Average AUM (at 0.36%) is also higher than listed peers Nippon Life (0.31%) and HDFC AMC (013%)
  • UTI’s has an unfavourable product mix, that is tilted towards debt and Liquid assets. For market leaders like HDFC Asset Management Company (HDFC AMC) and ICICI Prudential Mutual Fund (ICICI) has more favourable mix with equity assets and hybrid assets commanding a greater share in total AUM as compared to the Industry.

About the issue 

  • Issue open:  29 Sep - 1 Oct 2020 
  • Price band ₹552-₹554
  • Issue Size : 3.89 crore shares sold by existing shareholders 
  • Issue Size : ₹2,152-2,160 crore
  • Reservation for QIB - 50% , Retail -35%, Non institutional Investors -15%. Employees: 2 lakh shares
  • Bid lot: 27 shares, and in multiples thereafter

INDmoney Analysis

  • At the upper end of the price band on offer, UTI AMC’s IPO is priced at a PE ratio of 25.41, based on FY20 earnings. This is at a significant discount to listed peers HDFC AMC (trading at PE of 36) and Nippon Life (PE of 37). Given its relatively weaker profitability and growth ratios, this seems to be justified. UTI AMC operates at higher operating costs versus peers, which has taken a toll on its profitability. 
  • We believe that one can subscribe to this IPO purely from the chances of achieving listing gains. HDFC AMC is a better alternative for the long-term.

Consensus Recommendation (for other listed peers)

HDFC Asset Management Company: Hold (Based on views of 17 analysts from external institutions)

Nippon Life India Asset Management: Sell (Based on views of 14 analysts from external institutions)

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