All You Need to Know About Aditya Birla Sun Life AMC's Well-Timed IPO

In October 2017, we wrote the IPO analysis of the first AMC (asset management company) that went public - Reliance Nippon AMC Ltd.

It was followed by two more AMCs successfully raising funds - HDFC AMC and UTI AMC.

There is now another peer looking to compete by launching its IPO shortly.

The IPO of Aditya Birla Sun Life AMC opens next week on 29 September 2021 and closes on 1 October 2021.

Here are some details about this IPO.

Issue period: 29 September 2021 to 1 October 2021

IPO Size: Rs 27.7 bn - The entire issue is an offer for sale (OFS). Up to half of the net offer will be reserved for qualified institutional investors (QIBs), 35% for retail investors and remaining 15% for non-institutional investors (NIIs).

Price band: Rs 695 to Rs 712 per equity share

Bid lot: 20 shares and in multiples thereof. Retail investors can apply for a maximum of 14 lots (80 shares) which will amount to Rs 199,360.

Face value: Rs 5 per equity share

Object of the issue: To carry out an OFS and achieve listing benefits.

The share sale will result in an equity dilution of 13.5% for existing shareholders.

To give you a bit of history of the asset management company...

Incorporated in 1994, Aditya Birla Sun Life AMC is set up as a joint venture between Aditya Birla Group and Sun Life AMC of Canada.

It is India's largest non-banking affiliated fund house in terms of assets under management (AUM) and fourth overall, after SBI MF, HDFC MF and ICICI Prudential MF as of June 2021.

Since its inception, the fund house has established a geographically diversified pan-India distribution presence covering 284 locations spread over 27 states and six union territories.

As of June 2021, the company managed 118 schemes comprising 37 equity schemes, 68 debt schemes, two liquid schemes, five ETFs (exchange-traded funds) and six domestic FoFs (fund of funds).

A well-timed IPO

While physical assets such as real estate and gold have been the preferred avenues for household savings in India, the preference now has been shifting towards financial assets as can be seen from the chart below:

Share of financial savings on the rise

Commensurately, the proportion of net financial assets in total household savings has seen a sharp rise from 31% in fiscal 2012 to 41% in fiscal 2020, which bodes well for the mutual fund industry.

Moving on, the mutual fund industry in India is underpenetrated with mutual fund AUM as a percentage of GDP standing at 16% in the financial year 2021. This is much lower than developed and fast-growing peers.

Low penetration of mutual funds in India is also evident from the equity mutual fund AUM to market cap ratio, which compares with global peers as below:

This relatively low penetration indicates strong growth potential going ahead.

Banking on brand, rising SIPs, and flagship schemes

Over the last seven decades, the Aditya Birla group has grown to become one of India's largest and most respected corporate groups.

The group has a strong track record with leadership position in many sectors.

Investments through the systematic investment plan (SIP) route have become popular and on the rise for quite some time now.

SIPs accounted for 41.7% of the company's total equity-oriented mutual fund AUM and 34% of total individual investor mutual fund AUM, as of June 2021.

The company's outstanding SIPs have more than tripled from just Rs 860,000 as of March 2016 to Rs 2.8 m as of June 2021.

This led to a rise in its share of SIP AUM from 25.7% in March 2016 to 41.7% as of June 2021, which is higher than the industry share of 31.4%.

Aditya Birla Sun Life AMC manages 112 mutual fund schemes as of June 2021, several of which have recorded superior performance compared to industry averages. It also manages six domestic FoFs.

The company's flagship schemes include Aditya Birla Sun Life Frontline Equity Fund and Aditya Birla Sun Life Corporate Bond Fund.

Its frontline equity fund has grown to become the fourth largest among the large cap equity schemes of the top 10 AMCs in India, in terms of QAAUM.

Meanwhile, its corporate bond fund is the third largest corporate bond fund in India, in terms of QAAUM.

13 of its top open-ended schemes accounted for 64.4% of QAAUM and have outperformed peers under the 10-year annualized return horizon.

But there are some negatives too...

The firm operates in a cyclical industry and its business is largely dependent on financial markets and general economic conditions. Any adverse fluctuations in financial markets or adverse conditions in the economy could cause the firm's AUM to decline, which further will have a direct bearing on its revenues and profitability.

There's more competition now that the mutual fund industry is evolving. As there are low barriers to entry, it has resulted in several smaller participants entering the market.

Also, the performance of the company's scheme is critical to retaining its existing customers as well as attracting new customers, which is also an important factor in the growth of its AUM.

Rising interest rates and inflation also pose a threat as inflation in India has been relatively low in recent past. If it rises significantly, the savings trend could reverse.

Apart from the above, the company also faces many regulatory risks such as tightening of fees and commissions, cap on fund expenses, recategorization of schemes, etc. by the market regulator.

Key financial metrics

Aditya Birla Sun Life AMC has been in the top five list of fund houses with highest AUM and consistent growth in profit. It has a track record of delivering robust financial performance.

It holds the sixth position among the top 10 AMCs in terms of net profit to AAUM as of the financial year 2021.

Here's a table comparing the company's financials over the past three years.

(Rs m)	FY19	FY20	FY21	Jun-20	Jun-21
Revenue	14,073	12,348	12,058	2,607	3,362
Revenue Growth (%)	-	-12%	-2%	-	29%
Expenses	7,615	5,740	5,100	1,306	1,304
Net Profit	4,479	4,942	5,277	988	1,565
Net Profit Margin (%)	32%	40%	44%	38%	47%
Net Worth	12,206	13,169	17,046	14,157	18,022
Return on Net Worth (%)	37%	38%	31%	7%	9%

Data Source: RHP

For more details, check out Aditya Birla Sun Life AMC's RHP.

Peer comparison

After getting listed, the company will join listed industry peers - HDFC AMC, Nippon Life India AMC and UTI AMC.

Comparative Analysis

Company	Revenues	Net Profit
Aditya Birla AMC	12,058	5,277
HDFC AMC	22,019	13,258
UTI AMC	11,988	4,943
Nippon Life AMC	14,193	6,794

Source: RHP, Equitymaster
Figures in Rs m and as on March 2021

The company also compares well amongst its peers on various fronts...

The table below shows the monthly average AUM and market share of the largest AMCs in India (presented in descending order in terms of QAAUM as of June 2021).

Why this offer will see good response...

Retail investors are showing huge anticipation for upcoming IPOs.

The IPO of Aditya Birla Sun Life AMC is set to witness good response as markets are bullish on AMC stocks for good reason.

All listed AMCs have decent financials. Also, they have high growth potential given the low penetration.

Take the recent share price performance of UTI AMC which listed last year in October. Since listing, it has gained 130%.

But as companies line up to raise funds amid high valuations, investors need to consider numerous factors before investing in an IPO.

It's not just the strength of the business and the management's track record, but the valuations which are the key decision factors.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...