UTI AMC IPO enters as a public company on Sep 29th, 2020. It does this through an offer for sale (OFS) by its promoters on account of 3.89 Cr shares. The company is to zero benefits from this IPO.
Only the promoters will get the benefit for which the public investors will get the shares of the company.
As a company, they are the second largest in maintaining total AUM of mutual funds, PMS, EPFO, and NPS funds. Also, the seventh-largest AMC in holding mutual funds AUM. The current QAAUM (Quarterly Average Assets under Management) of the company is Rs. 1336.3 Billion.
The major promoters who sell off the shares are SBI, LIC, and BOB. They have 18.24% of the total shares in UTI AMC.
As per SEBI regulation Promoters shouldn’t have more than 10% of stakes in more than one company. As these three companies have more than 10% in their parent companies, they have to sell the stakes to maintain less than 10% by Dec 2020.
This makes the 100% promoters holdings 69.25% of holding post IPO.
UTI AMC IPO – Business Overview:
Before entering into any shares or stocks, the first thing we should analyze is their business model. AMC (Asset Management Companies) operates in the same formula.
They manage the total assets that were invested by the investor in mutual funds (Equity or Debt).
The AMC which manages the total assets of the mutual fund charges a “Management Fee”. This in other words known as the “Expense Ratio” to investors.
On average, 73% of AMC revenue comes from the management fee. So, when AUM increases, AMC management fees increase. Thus the revenue of an AMC company grows.
AMC management fees are highly dominated by Equity mutual funds. When the market is bullish, two parameters grow. They are,
· Number of Investors and Investments increase.
· Fund NAV will increase, and this increase the AUM size.
The revenue split is from
· Sales of Services (Management Fees) – 61%
· Net gain on fair Value Changes – 34.42%
· Interest Income – 1.31%
· Rental Income – 0.93%
· Others – 2.2%
Key Fact of UTI AMC on Business:
· One of the ten top AMC’s in India.
· UTI AMC has almost 11 million active folios, which accounts for 12.8% of total users in the Indian mutual fund industry.
· UTI AMC is been for 55 years in India and first to launch. It was a monopoly for almost 25 years. This AMC was the first to launch mutual funds in 1964.
· It almost manages 173 mutual fund schemes which comprise equity, debt, and hybrid.
· It holds the maximum market share in Index funds or Passive funds.
· It also has a global Asset Management Company.
Opportunities for AMC in India:
· When we check the mutual contribution to countries GDP is just 12% as per the CRISIL report. Where the world average is 63%. This ensures the mutual fund industry has immense potential in the future.
· The GDP contribution of mutual funds has increased from 4% in 2002 to 12% in 2020.
· The five-year growth of AMC’s is about a CAGR of 15.76%. UTI AMC has shown a growth of about a CAGR of 10.31%. So, there is a huge potential left behind.
· Also, the AMC has grown at a rate of 13% CAGR in the last 10 years.
· In addition to this, the AMC revenue is likely to grow at a CAGR of 13-15% from 2020-2025.
· Net profit is expected to grow at a CAGR of 15-16% per year from 2020-2025.
From the above picture, you can clearly understand how AMC segment-wise has grown in the last 5 years.
- Equity has a strong growth in CAGR of 20.50%
- The Debt funds have grown by a CAGR of 4.95%
- The Liquid funds or money market funds have grown at a CAGR of 16.8%
- The Index fund or the passive fund has grown by 57.2%
- The split was Equity (31%), Debt (45%), Liquid Fund (23%), and Index Funds (1%) during Fiscal 2015.
- Currently, the split is of Equity (40%), Debt (28%), Liquid Fund (25), and Index fund (7.4%) by Jun 2020.
UTI is the market leader in an Index fund and the Index fund is growing at the rate of 57%. The share of the Index fund and Equity funds increase year on year. This will be benefiting UTI AMC for sure.
Financial Performance – UTI AMC IPO:
The above image should have given you more insight into how the revenue and profit have declined in the last two years compared to FY2017-18.
In addition to this,
· The market share has declined from 8.2% in 2014 to 5.4% in 2020.
· The income from management fees has also dropped heavily from 9.4 Billion in FY2017-18 to 7.9 Billion in FY2019-20.
There are many reasons for the shortfall. They are,
· Declines in the Equity market during the pandemic time.
· The interest rate changes made a huge impact on debt funds.
· The Franklin Templeton debt funds crisis has made many investors stay out of debt funds.
· Huge redemption has happened in equity funds and debt funds from February to April 2020.
· Many investors have stopped SIP (Systematic Investment Plan)
Despite these shortfalls in growth, the Q1’2020 result would please the investors and IPO seekers of UTI AMC.
· The 1st Quarter profit after tax has marketed a strong performance of 101.1 Cr. This is 46.37% higher than the average quarter PAT.
· In the same way, the revenue of Q1’2020 is 27% higher than the average quarterly revenue of FY2019-20.
This has shown a strong comeback which will please the investors for sure.
Fundamental Analysis – UTI AMC IPO:
The total number of shares UTI AMC holds is 12.54 Cr Shares.
The Market capital expected after the IPO will be Rs. 6947.16 Cr.
In the last three years, EPS has grown negative.
FY2019-20 EPS – 21.53
EPS (TTM) – 23.82.
The Q1’2020 EPS has grown 47.3% higher than the Average EPS in a quarter.
· P/E ratio – 23.25 (Fair value)
· Industry P/E – 38.64
· Net Asset Value per share – Rs. 223.6
· 1 year RoNW – 9.88%
· 3 Years RoNW – 12.02%
Excess Liquid Cash Per Share:
The data are from the quarterly result of Q1, 2020 (June 2020):
Liquid Assets:
· Cash & Cash Equivalent: 123.86 Cr.
· Investments: 2457.39 Cr.
· Other Financial Assets: 151.35 Cr
Total Liquid Assets: 2732.5 Cr
Total Liabilities: 4170.51 Cr
Excess Liquid Asset Cash: -1438.01 Cr
Excess Liquid Cash per Share: -114.67 Rs per share.
COMPARISON WITH PEERS:
The image has given you a clear comparison to its peers.
· Unlike UTI AMC, HDFC AMC and NIPPON AMC’s revenue has grown in revenue in the last 2 years.
· All three AMC’s have lost their market share in the last 5 years.
· The profit has come down in both UTI and Nippon AMC’s. Whereas in HDFC AMC, the profit has grown.
Important IPO Details:
· IPO issue date – 29th September 2020
· IPO Closure date – 1st October 2020
· Issue Size – 3.89 Cr shares for Rs. 2159.88 Cr
· Face Value – Rs. 10 per equity share.
· IPO price Band – Rs. 552 to Rs. 554.
· Minimum Lot – 1 Lot – 27 Shares – Rs. 14,958
· Minimum Lot – 13 Lots – 351 Shares – Rs. 1,94,454
· Finalization of Allotment – 7th October 2020
· Initiation of Refunds – 8th October 2020
· Credit of shares to DEMAT account – 9th October 2020
· IPO Shares listing Date – 12th October 2020.