HDFC AMC IPO Review: Potential Long Term Wealth Generator


HDFC AMC IPO (HDFC Asset Management Company) from India’s second-largest by assets under management (AUM), will hit the market on Wednesday to raise around Rs. 2800 crores. HDFC AMC operates as a joint venture between Housing Development Finance Corporation Limited and Standard Life Investments Limited. This has been a much awaited IPO by the investors.

Issue Period Wednesday, July 25 – Friday, July 27, 2018
Face Value Rs.5/- Per Share
Issue Details Offer for Sale of 25,457,555 Equity Shares
Issue Size (Rs. Cr) Rs.2,800 Cr
Price Band Rs.1,095 – 1,100
Bid Lot 13 Equity Shares and multiple thereof
Reservation for  
HDFC AMC Employees    320,000 Equity Shares (Rs.35 Cr)
HDFC Ltd Employees    560,000 Equity Shares (Rs.62 Cr)
HDFC Ltd Shareholders 2,400,000 Equity Shares (Rs.264 Cr)
Issue Structure :  
QIB 50% of the Net offer
NIB 15% of the Net offer 
Retail 35% of the Net offer-77,62,145 Shares -Rs.850~Cr – Rs. 854 Cr)
Application retail for 1x  5,97,088
BRLMs Axis Capital, Kotak Mahindra Cap, DSP ML, Citigroup Global, CLSA India, HDFC Bank, ICICI Sec,
Registrar Karvy Computershare Pvt Ltd
  • HDFC Asset Management Company (HDFC AMC) Limited is well-known fund house engaged in providing savings and investment products. HDFC AMC offers a wide range of savings and investment products across various asset classes.
  • HDFC AMC was incorporated in 1999 and operates as a joint venture between Housing Development Finance Corporation Limited  and Standard Life Investments Limited 
  • HDFC AMC has been the largest AMC in equity-oriented AUM since the last quarter of Fiscal 2011 and has consistently been among the top two asset management companies in India in terms of total average AUM since the month of August 2008.
  • The company also provides portfolio management and segregated account services to HNIs, family offices, trusts, domestic corporates and provident funds and more.
  • As of March 31, 2018, it  served customers in over 200 cities through our pan-India network of 209 branches (and a representative office in Dubai) and service centers of its registrar and transfer agent (“RTA”) supported by a strong and diversified network of over 65,000 empanelled distribution partners across India, consisting of independent financial advisors (“IFAs”), national distributors and banks. 
HDFC AMC: Financials:
   (Rs. In Cr)
Particulars Fy18 Fy17 Fy16 Fy15
Revenue from Operations 1,759.75 1,480.03 1,442.54 1,022.43
Revenue Growth (%) 2.60% 41.09%
Profit Before Tax 1,062.52 799.8 708.25 622.59
Profit after Tax 721.62 550.25 477.88 415.5
PAT as % to revenue 41.01% 37.18% 33.13% 40.64%
EPS (Rs.) 35.02 27.33 23.64 20.58
RoNW (%) 33.41% 38.67% 41.51% 37.10%
Net Asset Value (Rs.) 102.58 70.68 57.19 55.46
Share Capital 105.28 25.16 25.16 25.24
Reserves 2,054.69 1,397.77 1,126.06 1,094.65
Net Worth 2,159.97 1,422.94 1,151.22 1,119.89
Face Value 5
Post Issue Equity 105.99
EPS (FY18) 34.04
IPO Price 1100
PE  32.31
P/BV 10.72
CAGR Sales 3 Yrs 19.84%
CAGR Net Profit 3 Yrs 20.20%
Market Cap 23317.80
Market cap / Sales 13.25
  • The mutual fund industry in the country  expected to grow over 20% over the next few  years and HDFC AMC which is viewed as trusted fund house looks well poised to tap this opportunity,
  • HDFC AMC  has demonstrated strong investment performance which is  supported by its comprehensive investment philosophy and well laid down risk management practices. 
  • HDFC AMC had reported a 31% jump in net profit at Rs 722.61 crore in 2017-18 compared to Rs 550.24 crore in the previous financial year. The company’s total revenue surged 17.6% year-on-year to Rs 1,867.24 crore in 2017-18. Its assets under management have grown at a CAGR of 33.9% since fiscal 2001.
  • HDFC AMC has been seeing higher growth in B-15 cities as its AUM (Assets under management) has grown at a rate of 34.2% between March 2014 and December 2017.
  • HDFC Mutual Fund had the highest market share (16%) among individual investors’ assets, followed by ICICI Prudential Mutual Fund (14.7%) and Aditya Birla Sun Life Mutual Fund (9.9%). 
  • HDFC AMC has strong distribution channels. As of March 31, 2018, IFAs, national distributors and banks generated 27.6%, 21.0% and 17.3% of its total AUM, respectively.
  • HDFC AMC has paid good dividends in the past with dividend payout increasing from 35.3% in FY14 to 46.7% in FY18. With little CAPEX in this business, dividend flows are expected to be strong.
  • Adverse market fluctuations 
  • Adverse economic conditions
  • Under performance of investment products
  • Failure to continue with existing distribution relationships or to secure new distribution relationships.
  • Competition from other AMCs
HDFC AMC IPO: Comparison with Peers: 

Reliance Nippon Life Asset Management Company, the only listed AMC is trading at a P/E multiple of 25.4 x its  FY2018 EPS and at P/BV multiple of 5.8x

With Rs  EPS of Rs. 34 on the post IPO  equity, HDFC AMC is being offered at P/E multiple of 32.3 times its FY2018 EPS at the upper price band of Rs. 1100. The P/BV multiple of the scrip works out to be 10.8 times.

HDFC AMC IPO : Assessment

  • Strong Growth is expected in  in household financial savings.
  • HDFC AMC will be the fifth listing from HDFC group. All Group companies HDFC, HDFC Bank, Gruh Finance and HDFC Life command high premium and have rewarded investors handsomely. 
  • HDFC AMC has been the most profitable asset management company in India in terms of net profits from 2013 onwards.
  • HDFC AMC RoE is 35% plus  compared to  peer’s  which hovers at 25 %.
  • Equity oriented Mutual Funds bring higher income to the AMC than other categories. The company’s equity oriented funds AUM  stood at around 51% compared to  industry average of ~43%. Company also has good share of SIPs  and portion of retail investors vis a vis the industry.
  • HDFC AMC IPO presents a unique is good opportunity to participate in financialisation of savings. It is a well managed co with considerable  brand value and runs a business that has little requirement of  long term working capital. 
  • With AUM (Assets under management) , revenue and net profit  all recording 20% CAGR in last three years, HDFC AMC growth has been impressive. Thus  even at P/E of around 34 and a high P/B ratio of 10.8, the HDFC AMC IPO could end up as a highly fancied IPO and should command premium valuations. valuations are bit stretched while its .  I intend to apply in the HDFC  IPO both in  retail and shareholders quota. The shares if alloted may well be in my ‘No Sell” category as the company could well turn out to be a long term wealth generator.
Standard disclaimer:  I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk. 

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