HDFC Asset Management Co. Ltd. (HDFC AMC) – IPO

Open Date – Wednesday, 25/07/2018                                             Close Date – Friday, 27/07/2018

Price Band (Rs.) – 1095 to 1100          Lot Size – 13 Shares         Minimum Investment – Rs.14300

Credit of equity shares to DP  A/c – 03/08/2018                          Listing on Stock Exchange – 06/08/2018

RECOMMENDATION – SUBSCRIBE

HDFC Asset Management Co. Ltd. (HDFC AMC) operates as a joint venture between HDFC and Standard Life Investments Ltd. HDFC AMC has been the most profitable asset management company in India in terms of net profits since FY13, according to CRISIL.

AUM grew at a CAGR of 33.9%-HDFC AMC had a total AUM of Rs.291985 crores as of 31st March, 2018,  with an impressive growth at a CAGR of 33.9% since FY2001. Equity-oriented AUM and non equity-oriented AUM constituted Rs.149713 crore and Rs.142273 crore respectively.

Equity-oriented AUM – HDFC AMC’s proportion of equity oriented AUM to total AUM was at 51% as of 31st March, 2018 which was higher than the industry average of 43%. As equity-oriented schemes generally have a higher fee structure compared to non-equity-oriented schemes, HDFC AMC’s product mix helps it achieve higher profitability. HDFC AMC’s market share of total AUM was 13.7% as of 31st March, 2018.

Profit grew at a CAGR 32.1% – HDFC AMC’s profits have grown at a CAGR of 32.1% since FY2002 which was the first full year of operations. It has been the most profitable AMC in India in terms of net profits and total revenue since FY13 and has the highest share of net profits and total revenue of 18.8% and 13.5%, among all AMC’s in India in FY17.

Large Customer Base – As of 31st March, 2018, HDFC AMC had the highest share of individual customers of 15.7% and the second largest (after SBI MF) market share of monthly average AUM (MAAUM) of 12.7% from B-15 cities in India.

High Dividend Payout Ratio- HDFC AMC dividend payout ratio has risen from 41% in Fiscal 2014 to 56% in Fiscal 2018 whereby company paid a dividend of Rs.336.89 crore in Fiscal 2018.

Diversified Mix of Investment Products – As of March 31,2018, they offered 133 schemes that were classified into 27 equity-oriented schemes, 98 debt schemes ,3 liquid schemes, and 5 other schemes (including exchange-traded schemes and funds of fund schemes).This diversified mix of investment products provides flexibility to operate successfully  across various market cycles, cater  to a wide range of customer base.

Experienced and stable management & Investment teams –  HDFC AMC has a strong and stable investment team, which consisted of 26 employees as of March 31, 2018 with an average of 8 years of work experience with the company and an average of 17 years of total experience. Their attrition rates are amongst the lowest in the industry.

 

Conclusion – At the upper end of the IPO price band , HDFC AMC is offered at 32x its FY2018 EPS and 10.8x FY2018 book value with an average ROE of 40% + in FY2015-18 , demanding Rs.23,318 crore market cap, which is 7.6% of the MF AUM (Rs.3,06,841 crore for the month of June 2018) coupled with more than 50% of Dividend payout ratio, Diversified mix of Investment products, Experienced and stable management & Investment teams, Strong distribution network makes HDFC AMC IPO a perfect case for Subscription.

 

Source – Annual Reports, AMFI, Websites of AMCs/Parent Cos., CRISIL Research

 

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