Rs. 2,768 cr IPO – Entirely OFS, mainly by foreign promoter

• Rs. 2,565 cr by Sun Life, trimming 49.0% stake to 36.5%
• Rs. 203 cr by Aditya Birla Capital, reducing 51.0% stake marginally to 50.01%

Price band: Rs. 695-712 per share

Mcap: Rs. 20,500 cr, implying 13.5% dilution

IPO Date: Wed 29 Sep 21 to Fri 1 Oct 21, Listing: 11 Oct 21

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Company Strengths:

1. Growing Financialisation of Savings: Mutual funds are increasingly being viewed as a simple and cost-effective route for investments in the country and company can grab a share of the growing savings pie.
2. High ROE business: Asset management is an asset-light business, with high operating leverage. Aditya Birla’s FY21 RoE of 31% is among the highest, partly due to low net worth of Rs. 1,800 cr, as against, Rs. 3,000-4,500 cr, for 3 listed peers.
3. Undemanding Valuation: 7.0% of Rs. 2.9 lakh cr AUM, vis-à-vis 7.4% for non-bank peer UTI AMC, 11.7% for another non-bank AMC Nippon Life and 16.4% for HDFC AMC. Even on a PE multiple basis, valuation of 33x is at a discount to 36-50x for peers. 

Concerns:

1. Declining Market Share: Company’s market share as a percentage of mutual fund industry AUM, slipped from 10.1% in Mar 2019 to 8.3% in June 2021, due to lower-than-industry growth rates in the past few quarters.
2. Adverse AUM Mix: Share of the most-profitable equity segment is at 37%, lower than industry average of 41%, impacting profitability. Aditya Birla’s PAT as a % to AUM is ~20 bps, as against 25-30 bps for Nippon, ~30 bps for UTI (partly due to investment income), 30-35 bps for HDFC AMC. 
3. Non-bank AMCs face stiff competition from bank-sponsored AMCs like SBI (toppled HDFC to become #1), Kotak (took #5 spot from Nippon) and Axis. Company’s share of banks in equity mutual funds distribution is only 12% (14% for HDFC) despite an open architecture framework among private banks.