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UTI AMC share sale to open on September 29: Should you subscribe?

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 share sale to open on September 29: Should you subscribe?

The shares of the company are proposed to be listed on BSE and NSE

The initial public offering (IPO) of UTI Asset Management Company (AMC) will open for subscription on September 29 and end on October 1. Price band stands for the issue stands at Rs 552 - Rs 554 per share

UTI AMC that manages 178 domestic mutual fund schemes, comprising equity, hybrid, income, liquid, and money market funds, filed draft papers with Sebi in December 2019 and received markets regulator Sebi's go-ahead in July 2020.

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 IPO will see existing shareholders, State Bank of India (SBI), Life Insurance Corporation of India (LIC), Punjab National Bank (PNB), Bank of Baroda (BoB) and T Rowe Price International selling 3.9 crore shares or 18.2% stake each to pare their stake in the AMC, as per regulatory requirements. The proceeds from IPO sale of UTI AMC will go to existing shareholders SBI, LIC, BoB.

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. 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.

As of September 30, 2019, the company had the largest share of monthly average AUM. This will be the third AMC to get listed on the stock exchanges after Nippon Life India Asset Management and HDFC AMC. The shares of the company are proposed to be listed on BSE and NSE.

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."

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