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UTI AMC IPO in progress: All you need to know about the share sale

The objective of the offer is to achieve the benefits of listing the equity shares on the stock exchanges. Being an OFS, the net proceeds from the share sale of UTI AMC will go to existing shareholders SBI, LIC, BoB

UTI AMC IPO in progress: All you need to know about the share sale

UTI AMC manages 178 domestic mutual fund schemes, comprising equity, hybrid, income, liquid, and money market funds

In a move to divest the stake held by its five shareholders, the initial public offering (IPO) of UTI Asset Management Company (AMC) has opened for subscription today and will end on October 1. The price band for the issue stood at Rs 552 - Rs 554 per share

Here are top things to know about the IPO:

The IPO is an offer for sale of 3,89,87,081 equity shares, or 30.75 per cent stake by the company's existing investors to raise Rs 2,152-2,160 crore. Investors can bid for a minimum of 27 equity shares or in multiples thereof. This means that one will have to shell out at least Rs 14,904 to bid for the issue.

-In order to reduce promoter's share from 100% to 69.2%, the public issue consists of an offer for sale by shareholders including State Bank of India, Bank of Baroda, LIC, Punjab National Bank and T Rowe Price. First three shareholders will sell 10,459,949 shares each, while the other two will offload 3,803,617 shares each to pare their stake in the AMC, as per regulatory requirements.

-SBI, LIC, BOB and PNB hold 18.24% each and also have their own AMCs, while T Rowe has a 26% stake in UTI AMC, according to the company's DHRP. Under Sebi's mutual fund regulations, a shareholder or a sponsor owning at least 10 per cent stake in an AMC is not allowed to have 10 per cent or more stake in another mutual fund house operating in the country.

-The OFS also includes a reservation of up to 2,00,000 equity shares (constituting up to 0.16 per cent of the post-offer paid-up equity share capital) for purchase by eligible employees.

-The objective of the offer is to achieve the benefits of listing the equity shares on the stock exchanges. Being an OFS, the net proceeds from the share sale of UTI AMC will go to existing shareholders SBI, LIC, BoB.

- India's oldest mutual fund, UTI AMC filed draft papers with Sebi in December 2019.  The Securities and Exchange Board of India (Sebi) recently on June 23, 2020, gave its approval to the initial public offering (IPO) papers filed by UTI Asset Management Company (UTI AMC).

-Through the allotment to anchor investors, the AMC has already raised nearly Rs 644.64 crore through such as Nomura (Singapore), Goldman Sachs (Singapore), Morgan Stanley Asia (Singapore), ICICI Prudential Mutual Fund and HDFC Mutual Fund, among others.

-Kotak Mahindra Capital Company, Axis Capital, Citigroup Global Markets India, DSP Merrill Lynch, ICICI Securities, JM Financial and SBI Capital Markets are the book running lead managers to the offer.

-UTI AMC manages 178 domestic mutual fund schemes, comprising equity, hybrid, income, liquid, and money market funds.

-This will be the third AMC to get listed on the stock exchanges after Nippon Life India Asset Management and HDFC AMC. As of September 30, 2019, the company had the largest share of monthly average AUM. According to Crisil Research, UTI AMC had the second-highest market share by AUM of PMS services in India.

-Brokerages expect the allotment in UTI AMC equity shares to be on October 7, while listing of the equity shares on BSE and NSE is likely to be on October 12.

- During the Q1 FY21 quarter,  revenue increased 11.4% YoY to Rs 271 crore. The company has consistently generated positive operating cash flow over FY17-20, but it declined by 26.5% CAGR.

Here's what analysts say about the IPO:

HDFC Securities in its note said," Its Domestic Mutual Fund QAAUM was Rs1,336.3 billion as of June 30, 2020. UTI AMC has the highest proportion of its monthly average AUM as of June 30, 2020, attributable to B30 cities of the top ten asset management companies in India as of June 30, 2020. UTI AMC's size and diverse client base, coupled with its strong product portfolio and, particularly in B30 cities, extensive distribution network and widely recognized brand, position it to capitalise on future growth in the Indian mutual fund industry."

Nirmal Bang Institutional Equities in its note said," Even though we are positive on the industry prospects from a long-term perspective, we take cognizance of some of the near-to-medium term headwinds. We think the IPO pricing is undemanding given the valuation HDFC AMC and Nippon AMC are currently commanding. We shall take a call on the stock rating at a later stage."

Canara Bank Securities in its note said," UTI AMC's PE stands at 25.73x FY20 as com-pared to HDFC AMC's and Nippon Life AMC's PE of 35.43x and 37.06x FY20 respectively. Hence, we recommend to Subscribe UTI AMC IPO for listing as well as long term gains."

Geojit in its note rated Subscribe to the UTI AMC IPO and said," Company's national footprint with a presence in many metropolitan and rural areas, and particular strength in B30 cities, has allowed them to leverage the UTI name and establish UTI as a brand which is recognised across the country.

Jaikishan Parmar- Sr. Equity Research Analyst, Angel Broking said,"UTI AMC's operational profitability is lower vs. listed peers primarily owing to higher cost. With the growth in AUM, we expect the cost to grow at a slower speed, which will benefit operating leverage and will help the company to improve EBITDA margins. At the upper end of the IPO price band, it is offered at 25.4x its FY20 earnings and 5.25% of Q1FY21 QAAUM, demanding 7,024cr market cap, which we believe is reasonable. Further, listed peers like HDFC AMC trades at 35x FY20 earnings and Nippon AMC trades at 37x FY20 earnings. Additionally, HDFC and Nippon AMC trade at 12.56% and 8.55% of Q1FY21 QAAUM, respectively. Considering attractive valuation, huge growth potential of MF industry, asset-light business and higher dividend payout ratio, we are positive on this IPO and rate it as SUBSCRIBE."

LKP Securities in its note said," At higher price band (Rs554), the stock is valued at 25.7(x)FY20 Earnings. Comparing with peers like HDFC AMC and Nippon AMC which are trading at 35.2(x) and 35.0(x)FY20 Earnings respectively due to higher ROE. We still believe that UTI AMC is lucrative and we recommend to SUBSCRIBE."

Nirali Shah, Senior Research Analyst, Samco Securities said,"UTI has received a mandate to manage 55% of EPFO in 2019 which has significantly boosted its AUM. This AMC has delivered decent returns and profit margins in the past few years with a Mcap to Equity QAAUM of 18% compared to HDFC AMC's 29%. Additionally, this year itself it granted ESOPs at Rs. 728/share while its price band is at Rs. 552-554/share which means it leaves more money on the table for investors for listing gains."

Centrum Broking said,"We are optimistic about the AMC space as asset management, being a fee based business is slated to grow (QAAUM) at an 18% CAGR in the medium term led by overall economic growth, growing investor base and higher disposable income levels. Recent regulatory changes such as revised expense ratios would lower costs for mutual fund investors which should aid in greater retail participation. Valuation is attractive with P/E at 25.4x FY20 EPS."

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