Reliance Nippon Life IPO opens: Asking price needs high risk appetite

Reliance Nippon Life Asset Management plans to raise upto Rs 1,542 crore from the primary market. Of this, Rs 165 crore will be used for acquisitions and strategic initiatives. The issue includes offer for sale of 3.67 crore shares by the promoter and a fresh issue of 2.44 crore shares.

The company has reported double digit growth in revenue and profit over the past few years. However, its valuation looks steep reflecting scarcity premium due to lack of a listed peer. Therefore, the IPO looks more suitable for investors with higher risk appetite.



BUSINESS
The company has 11.4 per cent market share of the country's mutual fund industry based on the quarterly average AUM. Its two main promoters are Reliance Capital, the financial services arm of Reliance Group, and Nippon Life Insurance Company .

They hold 46.5 per cent and 49per cent respectively in the company. It derives 85per cent of revenue from the mutual funds segment while the remaining is from investment-related segments. It has over seven million investor folios of which 96 per cent are retail.

FINANCIALS
Between FY13 and FY17, the company's total revenue grew at an annualised rate of 18 per cent to Rs 1,435.8 crore. Net profit rose nearly 15 per cent to Rs 402 crore.

VALUATION
The company seeks price-earnings (PE) multiple of over 38 on FY17 earnings and equity after the IPO.

According to Morningstar Research estimates, three prominent asset management companies (AMC) including BlackRock, Franklin Resources and Invesco, listed on the New York Stock Exchange, trade at forward PE of 21.5, 15.7 and 14.3 respectively. In 2016, they traded at 19.7, 12.1 and 13.6 in that order. In addition, analysts point out that AMCs with lower composition of equity command lower valuation.These factors make Reliance Nippon Life's IPO richly valued. However, given its growth momentum, investors with high risk appetite may consider investing.

Reliance Nippon Life Asset Management on Tuesday raised Rs 462.6 crore by allotting shares to 24 anchor investors at the higher end of the IPO price band of Rs 252 per share.The investors who participated include: ADIA, Kuwait Investment Authority, Fidelity International, Morg an Stanley, Eastspring Investments, Columbia Threadneedle Investments, Pictet, HDFC MF , Birla MF, SBI MF, UTI MF, DSP Blackrock MF, IDFC MF, ICICI Prudential Life and Bajaj Allianz.