Brokerages positive on HDFC AMC’s offer

MUMBAI: Brokerages have advised subscribing to the Rs 2,800-crore IPO of HDFC AMC, which will open for subscription on Wednesday. The IPO, priced at Rs 1,095-Rs 1,100 per share, is likely to attract interest even though valuations are at a 20 per cent premium to the only listed peer, Reliance Nippon, due to its strong parentage, high dividend payout ratio and the potential of mutual fund industry’s growth, said brokerages.

The proposed IPO offers up to 2.54 crore equity shares of the fund house through an offer for sale of 85.92 lakh shares by HDFC and up to 1.68 crore shares by Standard Life. HDFC AMC is selling 4.08 per cent stake in the IPO, while Standard Life will offload 7.95 per cent holding.

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The brokerage is positive on the IPO citing HDFC AMC’s position as the second-largest asset management company, huge potential for the mutual fund industry growth, strong return ratios, asset-light business, higher dividend payout ratio and a track record of superior investment performance.

ASIT C MEHTA INVESTMENT INTERRMEDIATES
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HDFC AMC is among the very few players which is best positioned to capture the high-growth potential of India’s mutual fund industry, which is underpenetrated in comparison with developed nations, said Asit C Mehta. “Given the underpenetrated nature of the MF industry coupled with first-mover advantage followed by well-diversified suite of products and multi-channel distribution network, strong brand image, superior return ratios, we believe the company is set to benefit in the long run,” it said. At the upper-end of the price band, valuation is reasonably priced, said Asit C Mehta.

CENTRUM WEALTH RESEARCH
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The firm said HDFC AMC IPO is priced at 10.8 times its FY18 book value which is higher compared to peer Reliance Nippon but the higher return on equity compared to Reliance Nippon, 19 per cent compounded growth in profit after tax, highest market share and higher component of equity in aggregate AUM, justify the valuation. Centrum said HDFC AMC is likely to retain its leadership position and yield higher profits.

GEPL CAPITAL
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HDFC Asset Management Company stands to gain from operating leverage, said GEPL Capital. The firm believes that HDFC AMC’s strong growth perspective in the upcoming period will drive the future growth which is higher to its domestic peers.

MOTILAL OSWAL
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The factors that may work in HDFC AMC’s favour include favourable perception of the company’s brand, higher mix of high-margin equity-oriented AUM, consistent return on equity of 40 per cent, wide distribution network and increasing dividend payouts, said Motilal Oswal. HDFC AMC’s valuation of 32 times FY18 earnings per share, which is at a 20 per cent premium to its only listed peer Reliance Nippon AMC, is justified due to its strong parentage, consistent market leadership and superior growth, it said.