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HDFC AMC to get a valuation of close to 8% of its AUM

Anand Adhikari     July 20, 2018

Over two decades old mutual fund industry is suddenly entering the IPO market. There is no urgency as the business model doesn't require capital infusion, but the equity dilution would certainly unlock the value of sponsors. The AMCs per se doesn't get higher valuations like life insurance companies, banks or general insurance industry. The AMCs often get valued as a percentage of their Asset Under Management. Reliance Nippon AMC recently got listed, while HDFC AMC would be entering the market next week. Let's look at how the HDFC AMC will be valued in the market.

  • The HDFC AMC IPO, which is all set to get a valuation of Rs 23,161 crore, is getting a valuation of close to 8 per cent of its Asset Under Management of Rs 3,00,548 crore. This is on the higher side as AMC often get a valuation of 5-6 per cent of the AUM.
  • The IDFC AMC, which is up for sale, is negotiating a valuation of around 5 per cent of its AUM.  Expert says the sale of operation, market leadership, performance and brand also matters while working out a valuation benchmark for an AMC. "You cannot club all the AMC under a 5-6 per cent bracket," say experts.
  • The first ever IPO from the mutual fund industry actually came from the Reliance Nippon Life AMC, which today has a valuation of Rs 13,601 crore, which is 5.55 per cent of its AUM of Rs 2,44,903 crore. There are also market conditions that impact the valuations. The industry is new in the secondary market and investors have expectations. Recently, there were a slew of IPOs from insurance and general insurance industry, which offered new investment options looking for taking an exposure in the financial services business.
  • The largest mutual fund in terms of AUM is ICICI AMC with a AUM of Rs 3,05,739 crore. If ICICI AMC decides to go for an IPO, it will get a valuation close to HDFC AMC. Currently, both the insurance arms of ICICI Group got listed on the bourses. There are indications that the group would unlock the value in the AMC business.
  • The oldest brand, UTI AMC if goes for an IPO, the valuation would be around Rs 10,000 crore. UTI AMC has been in the news for planning an IPO because foreign investor T Rowe Price has been making a strong case for an IPO in the AMC. There are indications that UTI AMC will be next after HDFC AMC to tap the market.
  • Experts say the entire AMC industry is not valued much. If one takes a 5-6 per cent benchmark of AUM as a valuation, the entire industry, if listed, would get a market valuation of around Rs 1,50,000 crore, which is the market valuation of Bajaj Finance or ICICI Bank.

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