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HDFC Asset Management Co - IPO Note - Angel Broking

Posted On: 2018-07-24 22:31:22

HDFC Asset Management Co (HDFC AMC) is the asset management arm of the HDFC Ltd (Promoter) and was established in 1999. In 2001, Standard Life Investments acquired 26% stake in HDFC AMC. It is the most profitable AMC and the second largest in terms of asset under management (AUM) with ~14% market share. As on March 2018, it managed AUM of Rs. 2,91,985cr out of which 51% was equity AUM. It has grown its AUM at a CAGR of 25.5% over FY2013-18.

Huge potential for growth (Industry) in Mutual Fund AUM: In the past five years (FY14-FY18), equity AUM for Indian MF industry has increased 4.4x, from Rs. 2 lakh cr to Rs. 9 lakh cr. Further, overall AUM has nearly jumped 2.5x from Rs. 8.2 lakh cr to Rs. 21.3 lakh cr. Moreover, the MF industry is receiving about Rs. 7,000cr per month through SIP (Systematic Investment Plan). We believe that this trend would continue in the coming years owing to (1) continuation of black money crack down; (2) lower fixed deposit rates; (3) increased awareness; (4) low penetration (AUM/GDP -13% vs. +50% in developed markets).

Most profitable AMC among top 5 AMCs: HDFC AMC has been reporting the best profitability numbers in the industry owing to operating efficiency. For FY18, HDFC AMC had reported PAT/AAUM of 0.26%, whereas other top 5 players had reported the same in the range of 0.21-0.14%.

Healthy financials to support higher dividend payout: Revenue/EBITDA has grown at healthy CAGR of 20% over FY2013-17. Return on equity (ROE) for FY2018 was 40% and last 5 years average ROE was 42%. For FY2018, HDFC AMC registered dividend payout of 47%, notably the company has been maintaining dividend payout of 41% on an average for last 5 years.

Outlook & Valuation: At the upper end of the IPO price band, it is offered at 32x its FY2018 EPS and 11x its FY2018 book value, demanding Rs. 23,318cr market cap, which is 7.6% of the MF AUM (Rs. 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.

Shares of HOUSING DEVELOPMENT FINANCE CORP.LTD. was last trading in BSE at Rs.1980 as compared to the previous close of Rs. 1966.6. The total number of shares traded during the day was 29589 in over 1649 trades.

The stock hit an intraday high of Rs. 1984.05 and intraday low of 1965. The net turnover during the day was Rs. 58470213.

Source: Equity Bulls

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