IPO Note | Financials
July 23, 2018
HDFC Asset Management Co
SUBSCRIBE
sue Open: July 25, 2018
Is
Issue Close: July 27, 2018
HDFC Asset Management Co (HDFC AMC) is the asset management arm of the
HDFC Ltd (Promoter) and was established in 1999. In 2001, Standard Life
Investments acquired 26% stake in HDFC AMC. It is the most profitable AMC and
Issue Details
the second largest in terms of asset under management (AUM) with ~14% market
Face Value: `5
share. As on March 2018, it managed AUM of `2,91,985cr out of which 51%
was equity AUM. It has grown its AUM at a CAGR of 25.5% over FY2013-18.
Present Eq. Paid up Capital: `25.24cr
Offer for Sale: `2,800cr
Huge potential for growth (Industry) in Mutual Fund AUM: In the past five years
(FY14-FY18), equity AUM for Indian MF industry has increased 4.4x, from `2 lakh
Fresh issue: -
cr to `9 lakh cr. Further, overall AUM has nearly jumped 2.5x from `8.2 lakh cr
to `21.3 lakh cr. Moreover, the MF industry is receiving about `7,000cr per
Post Eq. Paid up Capital: `25.24cr
month through SIP (Systematic Investment Plan). We believe that this trend would
Issue size (amount): *`2,787cr -
continue in the coming years owing to (1) continuation of black money crack
**2,800 cr
down; (2) lower fixed deposit rates; (3) increased awareness; (4) low penetration
Price Band: `1,095 - `1,100
(AUM/GDP -13% vs. +50% in developed markets).
Lot Size: 13 shares and in multiple
Most profitable AMC among top 5 AMCs: HDFC AMC has been reporting the
thereafter
best profitability numbers in the industry owing to operating efficiency. For FY18,
Post-issue implied mkt. cap:
HDFC AMC had reported PAT/AAUM of 0.26%, whereas other top 5 players had
*`23,212cr - **`23,318cr
reported the same in the range of 0.21-0.14%.
Promoters holding Pre-Issue: 95%
Healthy financials to support higher dividend payout: Revenue/EBITDA has grown
Promoters holding Post-Issue: 82.9%
at healthy CAGR of 20% over FY2013-17. Return on equity (ROE) for FY2018 was
*Calculated on lower price band
40% and last 5 years average ROE was 42%. For FY2018, HDFC AMC registered
** Calculated on upper price band
dividend payout of 47%, notably the company has been maintaining dividend
payout of 41% on an average for last 5 years.
Book Building
QIBs
50% of issue
Outlook & Valuation: At the upper end of the IPO price band, it is offered at 32x
its FY2018 EPS and 11x its FY2018 book value, demanding `23,318cr market
Non-Institutional
15% of issue
cap, which is 7.6% of the MF AUM (`3,06,841cr for the month of June 2018).
Retail
35% of issue
Considering that HDFC AMC is the second largest AMC coupled with huge
potential of MF industry growth, strong return ratios, asset light business, higher
dividend payout ratio and track record of superior investment performance, we
Post Issue Shareholding Patter
are positive on this IPO and rate it as SUBSCRIBE.
Promoters
83%
Key Financials
Others
17%
Y/E March (` cr)
FY14
FY15
FY16
FY17
FY18
Net Sales
859
1,022
1,443
1,480
1,760
% chg
20
19
41
3
19
Net Profit
358
415
478
550
722
% chg
12
16
15
15
31
EBITDA (%)
57
58
46
48
55
EPS (Rs)
17
20
23
26
34
P/E (x)
65
56
49
42
32
P/BV (x)
43
53
54
67
102
Jaikishan J Parmar
ROE (%)
45
41
42
43
40
Research Analyst
ROA (%)
44
41
42
42
40
+022 39357600, Extn: 6810
Source: RHP, Note: Valuation ratios based on pre-issue outstanding shares and at upper end of the price band d
Please refer to important disclosures at the end of this report
1
HDFC AMC | IPO Note
Company Background
HDFC Asset Management Co (HDFC AMC) is the asset management arm of the
HDFC Ltd (Promoter) and was established in 1999. In 2001, Standard Life
Investments acquired 26% stake in HDFC AMC. It is the most profitable AMC and
the second largest in terms of asset under management (AUM) with ~14% market
share. As on March 2018, it managed AUM of `2,91,985cr out of which 51% was
equity AUM. It has grown its AUM at a CAGR of 25.5% over FY2013-18.
Exhibit 1: AUM split
No Of
Scheme Categories
AUM (₹ in cr)
% of AUM
scheme
Equity-oriented
1,49,712
51
27
Debt
1,05,508
36
98
Liquid
35965
12
3
Other
799
0
5
Total
2,91,984
100
133
Source: Company
Key Management Personnel:
Mr. Milind Barve is the Managing Director and Executive Director of the company
and he has been with HDFC AMC since inception and is with the HDFC group for
over 34years. He has a bachelor’s degree in Commerce from the University of
Pune and he is also a fellow of the Institute of Chartered Accountants of India.
Prashant Jain is the Chief Investment Officer (CIO) and he has been with HDFC
AMC since June 2003 and was appointed as CIO with effect from July 2004. He
holds a bachelor’s degree in Technology from the Indian Institute of Technology,
Kanpur and a post graduate diploma in Management from Indian Institute of
Management, Bangalore. He is also a designated Chartered Financial Analyst
from the Chartered Financial Analyst Institute, USA.
Piyush Surana is the Chief Financial Officer and has been associated with HDFC
AMC for over five years. He holds a bachelor’s degree in Commerce and Law
from the University of Jodhpur. He is also a member of the Institute of Chartered
Accountants of India and a Certified Financial Planner from Financial Planning
Standards Board India.
July 23, 2018
2
HDFC AMC | IPO Note
Issue details
HDFC AMC Issue is offer for sale (OFS) of 2.55cr of equity shares and OFS is
worth `2,788cr/`2,800cr at lower band/upper band. HDFC Ltd and Standard Life
Investment is paring 4.05% and 7.96% stake respectively.
IPO to reserve 0.03cr, 0.056cr and 0.24cr shares for HDFC AMC employee,
HDFC Ltd Employee and HDFC Shareholders respectively.
Exhibit 2: Pre and Post-IPO shareholding pattern
No of shares (Pre-issue)
%No of shares (Post-issue)
%
Promoter
20,12,88,000
95.0
17,58,30,445
82.9
- HDFC Ltd
12,07,72,800
57.0
11,21,79,830
52.9
- Standard Life Inv
8,05,15,200
38.0
6,36,50,615
30.0
Public
1,07,00,800
5.0
3,61,58,355
17.1
Total
21,19,88,800
100.0
21,19,88,800
100.0
Source: RHP Note: Calculated on upper price band
Objects of the offer
To achieve benefits of listing equity shares on stock exchanges and to carry out
the offer for sale. Listing of equity shares will enhance HDFC AMC brand
name and provide liquidity to existing shareholders.
July 23, 2018
3
HDFC AMC | IPO Note
Outlook & Valuation
At the upper end of the IPO price band, it is offered at 32x its FY2018 EPS and 11x
its FY2018 book value, demanding `23,318cr market cap, which is 7.6% of the
MF AUM (`3,06,841cr for the month of June 2018). Considering that HDFC AMC
is the second largest AMC coupled with huge potential of MF industry growth,
strong return ratios, asset light business, higher dividend payout ratio and track
record of superior investment performance, we are positive on this IPO and rate it
as SUBSCRIBE.
Exhibit 3: Key competitive metrics for FY18 of the top 4 AMC
HDFC
Reliance
ICICI Pru
Aditya
AMC
Nippon
AMC
Birla Sun Life
AMC
AMC
Revenue (` in cr)
1,876
1,746
1,897
1,261
PAT (` in cr)
722
505
626
322
Revenue as % AAUM
0.67
0.74
0.67
0.55
PAT as % AAUM
0.26
0.21
0.22
0.14
Expenses as % of AUM
0.29
0.44
0.33
0.34
Source: RHP
Key Risk
Overall underperformance of investment scenario would adversely affect new
investment flow and could lead to redemption of existing investments.
Correction in the stock market would impact revenue and profitability of the
company.
Any step taken by SEBI to further reduce management fees would impact
revenues sharply.
July 23, 2018
4
HDFC AMC | IPO Note
Income Statement
Y/E March (` cr)
FY14
FY15
FY16
FY17
FY18
Revenues from Operations
859
1,022
1,443
1,480
1,760
- YoY Growth (%)
20
19
41
3
19
Employee Expenses
112
128
143
158
175
- YoY Growth (%)
11
14
12
10
11
Other Expenses
261
304
632
619
618
- YoY Growth (%)
18
17
108
(2)
(0)
Total Expenses
372
432
775
776
793
- YoY Growth (%)
16
16
80
0
2
EBITDA
486
591
668
704
966
- YoY Growth (%)
23
21
13
5
37
Depreciation
8
10
11
12
11
- YoY Growth (%)
(49)
20
9
8
(4)
Other Income
45
42
52
108
108
- YoY Growth (%)
(35)
(6)
24
108
(0)
Profit Before Tax
522
623
708
800
1,063
- YoY Growth (%)
17
19
14
13
33
TAX
165
207
230
250
341
% of PBT
32
33
33
31
32
PAT
358
415
478
550
722
- YoY Growth (%)
12
16
15
15
31
Balance Sheet
Y/E March (` cr)
FY14
FY15
FY16
FY17
FY18
Share Capital
25
25
25
25
105
Reserve & Surplus
876
1,095
1,126
1,398
2,055
Net Worth
901
1,120
1,151
1,423
2,160
Debt
-
-
-
-
-
Other Liabilities
15
15
15
1
1
Total Liabilities
916
1,135
1,166
1,424
2,161
Total Fixed Assets
28
34
31
31
33
Total Non Current Assets
-
-
-
-
6
Investments
737
651
986
1,237
1,951
Current Asset
Cash & Cash equivalents
1
3
1
1
2
Other Current Assets
1,036
436
292
250
308
Current Liability
1,007
177
257
176
210
Net Current Asset
30
262
37
75
100
Other Asset
122
189
112
81
71
Total Assets
916
1,135
1,166
1,424
2,161
Growth YoY
28
24
3
22
52
July 23, 2018
5
HDFC AMC | IPO Note
Cash flow statement
Y/E March (`cr)
FY14
FY15
FY16
FY17
FY18
Profit before tax
522
623
708
800
1,063
Depreciation
8
10
11
12
11
Change in Working Capital
(115)
(293)
306
4
(9)
Interest / Dividend (Net)
-
-
-
-
-
Direct taxes paid
(167)
(212)
(235)
(258)
(337)
Others
(39)
(33)
(48)
(103)
(107)
Cash Flow from Operations
209
95
742
455
620
(Inc.)/ Dec. in Fixed Assets
(17)
(16)
(9)
(13)
(18)
(Inc.)/ Dec. in Investments
(34)
119
(288)
(163)
(617)
Cash Flow from Investing
(51)
104
(297)
(176)
(635)
Issue of Equity
29
-
143
0
423
Inc./(Dec.) in loans
-
-
-
-
-
Others
(188)
(197)
(590)
(279)
(408)
Cash Flow from Financing
(159)
(197)
(447)
(279)
15
Inc./(Dec.) in Cash
0.16
1.54
(1.60)
0.30
0.80
Opening Cash balances
0.8
1.0
2.6
1.0
1.3
Closing Cash balances
1.0
2.6
1.0
1.3
2.0
Key Ratio
Y/E March
FY14
FY15
FY16
FY17
FY18
Valuation Ratio (x)
P/E (on FDEPS)
65
56
49
42
32
P/CEPS
64
55
48
41
32
P/BV
26
21
20
16
11
Dividend yield (%)
0.5
0.7
0.9
1.0
1.4
Per Share Data (`)
EPS (Basic)
16.9
19.6
22.5
26.0
34.0
EPS (fully diluted)
16.9
19.6
22.5
26.0
34.0
Cash EPS
17.3
20.1
23.1
26.5
34.6
DPS
6.0
7.7
9.5
10.9
15.9
Book Value
42.5
52.8
54.3
67.1
101.9
Returns (%)
PAT/AUM
0.33
0.28
0.29
0.24
0.25
ROE
45
41
42
43
40
ROA
44
41
42
42
40
EBITDA
57
58
46
48
55
PAT
42
41
33
37
41
Source: RHP, Note: ratios are Calculated on upper price band
July 23, 2018
6
HDFC AMC | IPO Note
Research Team Tel: 022 - 39357800
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