HDFC Asset Management Company (HDFC AMC) will launch its maiden public offer on 25 July. It will be second IPO of any asset management company in India but is keenly awaited, primarily because of HDFC brand name. The offer, priced in the range of INR1,095 – 1,100 per share (find more details of the IPO on this page) will value the company at nearly INR23,316.6 crore at the upper end of the price band. Here is a preview of brokerage houses’ recommendations for investors in HDFC Asset Management Company IPO:
Angel Broking has a positive stance on HDFC Asset Management Company IPO “At the upper end of the IPO price band, it is offered at 32x its FY2018 EPS and 11x its FY2018 book value, demanding `23,318cr market cap, which is 7.6% of the MF AUM (`3,06,841cr for the month of June 2018). Considering that HDFC AMC is the second largest AMC coupled with huge potential of MF industry growth, strong return ratios, asset light business, higher dividend payout ratio and track record of superior investment performance, we are positive on this IPO and rate it as SUBSCRIBE,” said the brokerage house in its report.
Similar views were expressed by Choice Broking although it noted that valuations are richer than its peer Reliance Nippon Life Asset Management. “On valuation front, HDFCAMC is demanding a valuation of 7.8% to its FY18 AUM, whereas as its only peer Reliance Nippon Life Asset Management Ltd. is trading at 5.6% to its AUM. Considering the higher concentration of equity assets in the AUM, most profitable AMC tag and the brand name associated, we feel that the higher valuation demanded by HDFCAMC seems to be justified. Thus, we assign a “SUBSCRIBE” rating for the issue,” noted the IPO report.
Ajcon Global noted that the premium demanded by the company is justified. “At the upper end of the price band, the issue is valued at a P/ E 31 times and P/BV of 10.6x at FY18 EPS and FY18 BV respectively which is at a premium owing to the to the following factors like: a) consistent market leadership position in the Indian mutual fund industry, b) trusted brand and strong parentage, c) strong investment performance supported by comprehensive investment philosophy and risk management, d) superior and diversified product mix distributed through a multi – channel distribution network; e) focus on individual customers and customer centric approach; f) consistent profitable growth, g) Company reaping the benefits of strong operating leverage, h) robust ROE of 33.4 percent in FY18 as compared to other AMCs in the industry, we recommend “SUBSCRIBE” to the issue for long term wealth creation,” said the brokerage house’s research report.
GEPL Capital is of the view that HDFC AMC will benefit from operating leverage. “HDFC Asset Management Company Ltd (HDFC AMC) stands to gain from operating leverage. At a P/E of 31x of FY18 EPS. We believe that it strong growth perspective in the upcoming period will drive the future growth which is higher to its domestic peers. We assign a Subscribe rating to the IPO,’ said its report on HDFC Asset Management Company IPO.
Centrum Broking finds that HDFC AMC’s valuations are higher than only listed peer but has justified the same. “At higher end of the price band of Rs 1,100, issue is priced at 10.8x its FY18 book value. While this is higher compared to its only listed peer – Reliance Nippon Life AMC (RNL AMC) which is trading at 5.8x; the high RoE of 33.4 percent versus 22.8 percent of RNL AMC, 19 percent PAT CAGR, highest market share and higher component of equity in aggregate AUM, justify the valuation,” said the report which rated HDFC Asset Management Company IPO five out of five.
Another positive word came from Hem Securities which finds merit in the company’s consistent market share and parentage. “The company is bringing the issue at price band of Rs 1095-1100/share. On higher band , co is valued at 7.98% of its total AUM of Rs 2919 billion as on FY18. Although co’s valuations are at premium when we compare it to listed domestic AMC as well as some of global AMCs but looking after co’s consistent market leadership in mutual fund industry coupled with strong parentage with trusted brand & profitable growth, we recommend “Subscribe” on issue,” said the brokerage house’s report.
Similarly, Prabhudas Lilladher highlights the company’s consistently increasing pay out ratios. “With the investments behind them the cash generation is so strong that we have seen a consistent increase in pay put ratios going forward. HDFC AMC is faced with a delicate scenario as they generate strong free cash with consistently increasing pay out ratios, we believe the stock is a must in any portfolio. Subscribe with a long term objective,” said its research note.
Motilal Oswal also has a positive view on HDFC Asset Management Company IPO. “Over FY15-18, it recorded Revenue/ EBITDA/ PAT CAGR of 19.8/ 17.8/ 20.2 percent. At the upper price band, HDFC AMC is valued at 32x FY18 EPS (20 percent premium to its only listed peer Reliance Nippon AMC), which is justified given the strong parentage, consistent market leadership and superior growth. We recommend Subscribe,” recommended the firm.
As we noted in our analysis of the IPO, there is little to dislike about the company, its business model or the valuations. This is also reflected in grey market premium (GMP) which has gone from strength to strength in the last week. We will add more to this list of analyst recommendations in the coming days as more brokers come up with their research notes.