UTI AMC IPO Review

UTI AMC IPO comprises sale of 3,89,87,081 equity shares which amount to 30.75 per cent stake by the existing shareholders. SBI, LIC, BOB are offering to sell 1,04,59,949 shares each, while PNB) and T Rowe Price International are selling 38,03,617 shares each. UTI AMC will be the third AMC to get listed on the stock exchanges after Nippon Life India Asset Management and HDFC AMC.

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UTI AMC IPO Details

Issue Period: Tuesday, 29 Sept-  Thu, 1 Oct 2020
Anchor Investors 28-Sep-20
Issue DetailsOffer for Sale of upto 38,987,081 Equity Shares
Issue Size (₹ Cr)₹ 2,152 Cr – ₹ 2,160 Cr
Price Band₹ 552 – 554
Bid Lot27 Shares 
Employee Portion200,000 Shares
Issue Structure : 
QIB50% of the net offer
NIB15% of the net offer 
Retail35% of net offer ( 13,575,479 Equity Shares – ₹ 752^Cr)
Applications Retail 1x5,02,795
BRLMsAxis Capital, Kotak Mahindra Cap, Citigroup Global, DSP ML, ICICI Sec, JM Financial, SBI Cap
RegistrarKFin 

Updates

  • ANCHOR ISSUE: to be cobered in another Post (UTI AMC IPO: consolidated Brokerage Views)

About UTI AMC and Offer for Sale of Shares

  • UTI Asset Management Company Ltd. (UTI AMC) was incorporated on November 14, 2002 and commenced operations from February 1, 2003. UTI AMC has been promoted by State Bank of India, Life Insurance Corporation of India, Bank of Baroda and Punjab National Bank and each of them hold 25% of the paid up capital of UTI AMC. UTI AMC was converted to a limited company with effect from November 14, 2007.
  • In 2010, T.Rowe Price Global Investment Services Ltd. U.K.(TRP) acquired 26% stake in UTIAMC and Directors representing TRP were inducted on UTI AMC board.
  • UTI AMC is the investment manager to the schemes of UTI Mutual Fund. It also manages offshore funds and provides support to the Specified Undertaking of the Unit Trust of India.
  • It is the holding company for UTI Venture Funds Management Company which manages venture funds and UTIInternational Ltd., which markets offshore funds to overseas investors. Another subsidiary is UTI Retirement Solutions Ltd., which acts as the fund manager to pension fund schemes.
  • As of June 30, 2020, the total QAAUM for its domestic mutual funds (“Domestic Mutual Fund QAAUM”) was ₹133,630 crore, while the Other AUM was ₹849,390 crore.
  • UTI AMC has 1.09 crore Live Folios as of March 31, 2020, which accounts for 12.2% of the approximately 8.97 crore folios that are managed by the Indian mutual fund sector.
  • As of June 30, 2020, UTI AMC manages 153 domestic mutual fund schemes, comprising equity, hybrid, income, liquid and money market funds.
  • Its distribution network includes 163 UTI Financial Centre, 257 Business Development Associates and Chief Agents.
  • UTI AMC also manages retirement funds (in its retirement solutions business, which manages the National Pension System (“NPS”) funds), offshore funds (including the Shinsei UTI India Fund, a co-branded fund with Shinsei Bank of Japan) and alternative investment funds. These other businesses (excluding its domestic mutual funds and its PMS business) had an aggregate closing AUM of ₹152,340 crore as of June 30, 2020.
  • Detail of selling shareholders
Sellers offering SharesShares Held% stake pre IPOOFS in IPO% stake post IPO
SBI2,31,25,00018.241,04,59,9499.99
LIC2,31,25,00018.241,04,59,9499.99
BOB2,31,25,00018.241,04,59,9499.99
PNB2,31,25,00018.2438,03,61715.24
TRP (T Rowe)3,29,64,6862638,03,61723.00

UTI AMC: Financials

Parameter/ Rs. MillionQ1FY21Q1FY20FY20FY19FY18
 Revenue from operations2,617.932,345.108,549.6910,505.0811,500.52
Net Profit1,005.54715.32,730.303,528.313,642.05
Equity Share Capital1,267.871,267.871,267.871,267.871,267.87
Net worth28,349.2926,531.7527,624.9626,043.7223,674.33
NAV223.6209.26217.88205.41186.72
EPS 7.935.6421.5327.8328.73
FV10    
IPO Price554    
EPS  Fy2021.53    
PE FY2025.73    
P/BV2.48    
Market Cap in Rs. Crore 7024    
Mcap/Sales3.00    

Pros

  • Well-positioned to capitalise on favourable industry dynamics, including the under penetration of mutual fund products
  • Pure-play independent asset manager with strong brand recognition and diverse portfolio of funds and services;Multiple distribution channels with wide reach and broad and stable client base;Long-term track record of product innovation, consistent and stable investment performance and AUM growth;
  • Established position in retirement solutions through product innovation and large retirement fund mandates;
  • Experienced management and investment teams supported by strong governance structures and human resources programs\
  • Enhanced profitability driven by the size and product mix.

Cons

  • Underperformance of the investment portfolio could lead to a loss of clients and reduction in AUM and result in a decline in income.
  • Credit risks related to the debt portfolio of funds.
  • Its market share has declined consistently over the past years and may continue to do so,
  • Its business is subject to extensive regulation, including periodic inspections by SEBI and by the Pension Fund Regulatory and Development Authority (“PFRDA”).
  • Increases in interest rates, oould have an adverse effect on the fixed income, liquid and hybrid business, liquidity and AUM

Comparison with Listed Peers

(based on FY20 financial data)

CompanyRevenue (cr)Ebita MarginP/ERONW %Market Cap (cr)Mcap / MF AUM (%)
UTI AMC8914125.739.8870245.3
HDFC AMC2,1437336.5431.334494112.6
Nippon Life India1,1935040.7516.03155758.6

UTI AMC IPO: Assessment

  • MF Industry AUM have grown at a healthy pace over the past ten years. CRISIL expects industry QAAUM to grow at a CAGR of18% between March 31, 2021 and March 31, 2025, driven by improved overall economic growth, growing investor base andgrowing investable household surpluses.
  • CRISIL expects industry revenues to grow at a CAGR of between 13% and 15% and net profits to grow at a CAGR of between 15% and 16%, over the same period.
  • UTI AMC is a professionally managed company and does not have an identifiable promoter in terms of SEBI ICDR ((Issue of Capital and Disclosure Requirements) Regulations and the Companies Act.
  • UTI AMC market share has declined consistently over the past years and any improvement in this looks difficult.
  • UTI has a reasonably good pie of NPS and PMS ,which accounted for 41% of its Q1FY21 revenue. This may provide some sort opf cushion. However margins ion these products is less.
  • UTI AMC Domestic Mutual Fund QAAUM decreased from ₹1,549.4 billion for the fiscal year ended March 31, 2018 to ₹1,515.1 billion for the fiscal year ended March 31, 2020, representing a compound annual growth rate (“ CAGR”) of -1.1%, and further decreased to ₹1,336.3 billion as of June 30, 2020, largely due to the reduction in our Domestic Mutual Fund QAAUM in liquid and income funds and the effects of the COVID-19 pandemic.
  • Multiple IPOs can cast a shadow on Listing gains. A volatile market can further add to this trend.
  • SEBI imposition of the upper limits on the TER of the mutual fund schemes has impacted UTI AMC revenues.
  • UTI AMC RONW stands at ~10% which is much lower than its peers like HDFC AMC(31%) as well as and NipponAsset Life(16%). It may be in this context that UTI AMC is being ooffered at P/E of 25x of its FY20 eaarning while HDFC AMC and Nippon Asset Life command 35+ PE.
  • Further indication that UTI has kept the price reasonable comes form its Market cap/ MF AUM fratio at 5.3% . This ratio is much higher for HDFC AMC (12.6%) and Nippon Asset Life(8.6%)
  • UTI AMC GMP has been falling from few days havimg started at Rs. 150 and as on 28/09/20 stands at ~ Rs . 45. with not hectic actvity in the grey market.
  • Several IPO issues are likely to dampen high listing gains seen in recent times.
  • Euphoria seen for stock trading in this year due COVID pandemic & work from home may not sustain in future.
  • Some degree of caution is needed for this IPO. It is somewhat a difficult case to decide when an IPO is offered at a quite reasonable price compared to peers but it also has a record of loosing market share in the past few years with even chances that such downtrend will continue in future too.
  • UTI AMC still has shades of Govt. sector work culture and many professionals may have keft the company for better AMCs. This is a big factor for investors ro consider, as even in recent past investor have seen erosion of wealth in OFS like HAL and BDL.
  • Considering all above factors. in all liklihood, I intend to apply in UTI AMC IPO but not on Day 1 or Day 2. The caveat is that there should be some positive signs from Grey market as well as response to the IPO by QIBs. Thus UTI AMC IPO is not as attractive or clear case as Mazagon Docks IPO despite AMC business being a quite attractive proposition.
  • Do check this page for any last minute updates

Standard disclaimer:  I am not a SEBI registered analyst and above analysis is for educational purpose only. Iam a postgraduate in engineering & Management . Also Certified in some exams like NISM-Series-V-A: Mutual Fund Distributors Certification, NISM-Series-X-A: Investment Adviser (Level 1) Certification and NISM-Series-X-B: Investment Adviser (Level 2)  Examination. This post is my view on the subject matter and is only academic and exploratory in nature. It is not meant to influence investment decisions of investors.  I may have bias/vested interest in covered Stock/Mutual Funds/NCD etc. due to my own investment or  leaning. Further my understanding of the areas on which I write may be imperfect or incomplete and data could be wrong due to limited time and resources at my disposal. Please do your own due diligence as stock market/MF investments have high degree of inherent risk.

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