HDFC AMC IPO Opens on July 25: Should you Invest?

HDFC Asset Management Co. has planned an IPO to raise Rs 2,800 crore. The much awaited HDFC AMC IPO opens on July 25, 2018.

The retail investors can apply up to a maximum of Rs 2 lakh, and at an upper band of the offer, the retail application money per lot is Rs 14,300. HDFC AMC IPO issue is an offer for sale and therefore the company will not receive any proceeds from it.

HDFC AMC is formed by a joint venture of HDFC and Standard life investments Limited (SLI). SLI is part of Standard Life Aberdeen plc., which is a global leading investment company. Currently, HDFC AMC is the largest AMC in India in terms of equity AUM and is among the second largest in terms of total AUM (INR 2.9 trillion as of FY18)

Investment Rationale

• Trusted & Strong Brand Image, reflecting the sustained leadership position in the Indian mutual fund industry.
• Strong investment performance across all the assets
• Diversified product mix includes 27 equity-oriented schemes, 98 debt schemes (including 72 FMPs), 3 liquid schemes, and 5 other schemes, distributed through a multi-channel distribution network
• Experienced and Strong team of professionals

Purpose of the issue

The objects of the IPO are:

1. Expand the visibility and brand image of the company.
2. To achieve the benefits of listing their Equity Shares on the Stock Exchanges. The listing of Equity Shares is expected to enhance the company’s brand name and provide liquidity to the existing shareholders.

HDFC AMC IPO Detail

• Issue Open: July 25, 2018 – July 27, 2018
• Issue Type: Book Built Issue IPO
• Issue Size: 25,457,555 Equity Shares of Rs 5 aggregating up to Rs 2,800.33 Cr and Offer for Sale of 25,457,555 Equity Shares of Rs 5
• Issue Price: Rs 1095 – Rs 1100 Per Equity Share
• Market Lot: 13 Shares
• Minimum Order Quantity: 20 Shares
• Listing At: BSE, NSE
• Commencement of trading of the Equity Shares on the Stock Exchanges: On or about August 6th, 2018

Valuation – Should you invest?

For FY18, HDFC AMC has reported PAT/AAUM of 0.26%, whereas other top 5 players in the mutual fund industry has reported the same in the range of 0.21-0.14%. The company’s Revenue/EBITDA has grown at strong CAGR of 20% over the period FY2013-17. Return on equity (ROE) for FY2018  is 40% and has given from last 5 years the average ROE of 42%. The company remains the most profitable AMC in terms of net profits. Therefore, it is recommended that the long term investors may “subscribe” to the HDFC AMC IPO.