HDFC Asset Management Co. Ltd (HDFC AMC) IPO is one of the most awaited IPOs of 2018.

Investors can bid for shares of HDFC AMC in the price band of ₹1,095 – ₹1,100 per equity share. At the upper end of the price band, the asset manager is valued at ₹23,319 crore.

Should you invest in this IPO and see if you get it or should you wait till it comes to the market? Here are some insights that will help you to make an informed decision about HDFC IPO.

HDFC AMC IPO: Quick Facts

The initial public offering of HDFC consists of a fresh issue of up to ₹2,800 crore and an offer for sale of up to 25,457,555 equity shares.

Here’s the brief about HDFC AMC IPO:

Issue Open Dates 25th July – 27th July, 2018
Issue Size Equity Shares of ₹5
Issue Price ₹1095 – ₹1100 Per Equity Share
Market Lot 25,457,555 Shares
Listing at BSE, NSE
Minimum Bid 13 shares
Retail Allocation 30.5%

Issue size and allocation will be like this:

Category Shares Offered
QIB 11,088,776
NII 3,326,634
Retail 7,762,145
Eligible HDFC AMC Employees 320,000
Eligible HDFC Employees 560,000
Eligible HDFC Shareholders 2,400,000
Total 25,457,555

HDFC AMC IPO: Objective

The objects of the offer are:

1. To carry out the sale of equity shares offered for sale by the selling shareholders.
2. Enhance the company’s visibility and brand image.
3. Provide a public market for equity shares in India.

The company will not receive any proceeds from the offer and all the proceeds from the offer will be received by the selling shareholders.

HDFC AMC IPO: Company’s Info

HDFC Asset Management Company (AMC) Ltd., also known as HDFC Mutual Fund, is one of the largest and most well-established fund houses in the country with a focus on delivering consistent performance across categories since the launch of the first scheme in July 2000.

HDFC AMC is a privately owned investment manager of HDFC Mutual funds. The firm manages equity, fixed income, and balanced mutual funds for its clients. The firm manages equity, fixed income, balanced, and real estate portfolios. It also manages hedge funds for its clients.

HDFC Asset Management Company Ltd was incorporated under the Companies Act-1956, on December 10, 1999, and was approved to act as an Asset Management Company for the HDFC Mutual Fund by SEBI vide its letter dated July 3, 2000.

The firm is based in Mumbai, Maharashtra.

HDFC Asset Management Company Ltd. operates as a subsidiary of Housing Development Finance Corporation Limited, Brand Capital, and Standard Life Investments Limited.

According to CRISIL, as of December 31, 2017, HDFC AMC has been the most profitable AMC of the country in terms of net profits since Fiscal 2013 with a total AUM (Assets Under Management) of ₹2,932.54 billion. Its profits have grown every year since 2002.

It has been the largest AMC in equity-oriented AUM since the last quarter of fiscal 2011 and has consistently been among the top two asset management companies in India in terms of total average AUM since the month of August 2008.

HDFC AMC offers a wide range of savings and investment products across asset classes. As of December 31, 2017, it offered 127 schemes categorized into:

  • 28 equity-oriented schemes
  • 91 debt schemes
  • 3 liquid schemes
  • 5 other schemes (including exchange-traded schemes and funds of fund schemes).

The company also provides portfolio management and segregated account services to HNIs, family offices, trusts, domestic corporates and provident funds etc. As of December 31, 2017, it managed a total AUM of ₹75.78 billion as part of its portfolio management and segregated account services’ business.

HDFC AMC believes in offering products that cater to varied investor needs.

Their products across asset classes and risk categories enable investors to invest in line with their investment objectives and risk taking capacity.

HDFC AMC IPO: Promoters And Management

The promoters of the company are HDFC Limited and Standard Life Investments.

As on the date, HDFC holds 120,772,800 equity shares and Standard Life Investments holds 80,515,200 equity shares, which constitutes 57.36% and 38.24%, respectively, of the company’s pre-offer, issued, subscribed and paid-up equity share capital.

HDFC AMC IPO: Company’s Performance

The company has an established track record of delivering robust financial performance.

The total revenue increased from ₹7,83.976 Cr in fiscal 2013 to ₹15,87.910 Cr in fiscal 2017, with a CAGR of 19.3%, and the net profit has grown from ₹3,18.746 Cr to ₹5,50.246 Cr during the same period at a CAGR of 14.6%.

The Dividend Payout Ratio increased from 40% in fiscal 2013 to 51% in fiscal 2017 and they have paid a dividend of ₹2,31.535 Cr in fiscal 2017 compared to ₹1,11.060 Cr in fiscal 2013.

Summary of financial Information:

Particulars 31-Dec-17 31-Mar-17 31-Mar-16 31-Mar-15 31-Mar-14 31-Mar-13
Total Assets 25,831.58 15,995.90 14,227.17 13,117.50 11,213.36 8,294.39
Total Revenue 13,167.21 15,879.10 14,943.42 10,642.76 9,031.14 7,839.76
Profit After Tax 4,955.55 5,502.46 4,778.80 4,155.00 3,577.70 3,187.46

*Data is for the year/period ended (in Rs. Millions)

HDFC AMC had reported a 31% jump in net profit at ₹722.61 crore in 2017-18 compared to ₹550.24 crore in the previous financial year.

The company’s total revenue surged 17.6% year-on-year to ₹1,867.24 crore in 2017-18. Its assets under management have grown at a CAGR of 33.9% since fiscal 2001 and profits at a CAGR of 32.1% since fiscal 2002.

HDFC AMC IPO: Company’s Strength

The company has been the largest asset management company in India in terms of equity-oriented AUM since the last quarter of Fiscal 2011 and has consistently been among the top 2 asset management companies in India in terms of total average AUM since the month of August 2008.

The AUM has grown at a CAGR of 27.1% between March 31, 2013, and December 31, 2017. The proportion of equity-oriented AUM to total AUM was at 53.0%, which was higher than the industry average of 44.1%, as of December 31, 2017.

HDFC AMC’s wide distribution network of 209 branches and more than 65,000 distributors across India gives it an edge especially when it comes to gaining investors.

Some of the key competitive strengths of HDFC AMC are:

  1. Consistent market leadership position in the Indian mutual fund industry.
  2. Trusted brand and strong parentage.
  3. Strong investment performance supported by comprehensive investment philosophy and risk management.
  4. Superior and diversified product mix distributed through a multi-channel distribution network.
  5. Focus on individual customers and customer-centric approach.
  6. Consistent profitable growth.
  7. Experienced and stable management and investment teams.
  8. Right strategy for the right product.
  9. Lower response time with efficient and effective customer service.
  10. Strong and experienced management team.

HDFC AMC IPO: Should you invest?

So far, HDFC AMC looks like a solid play in the Indian Mutual Fund industry. A favorable perception of its brand and management in the financial services industry works in its favor.

Also, investors may consider investing in the IPO of HDFC AMC for its top position in the industry, growth potential and ability to attract and retain subscribers.

According to ET, “Favourable perception of HDFC AMC’s brand, higher mix of high-margin equity assets than the industry average, consistent return on equity (ROE) of 40% since the past five years, a wide distribution network, and increasing dividend payouts work in the company’s favor. ”

Given that the company is the second-largest player by AUM in a high-growth industry, growing at 15-20% per annum, with strong profitable ratios, analysts are comfortable with the premium valuations.

Alternate option – Mutual Funds

Stock markets investing requires a good knowledge of the markets. If you do not have the time or skill to invest in the share markets, you’re better off investing in mutual funds.

  1. Investing in stocks requires a lot of time in deciding which shares to opt for. But it takes lesser time to learn about each mutual fund.
  2. Intensive research of companies along with the overall industry and market sentiment is required for investing in stocks. Fund houses with professional fund managers do all research for mutual funds like picking right stocks, tracking them and keeping you updated with the current market scenario.
  3. It requires a good amount of money to diversify your portfolio of stocks. Mutual funds by default have a diversified portfolio. They do so by investing in a collection of stocks and /or bonds, thereby reducing overall risk on investment.
  4. Investing in stocks is riskier than investing in mutual funds.

Investors like Rakesh Jhunjhunwala and Warren Buffet have built huge fortunes of wealth because of their strong fundamental and technical analysis and their ability to spot gems in the early stages.

Investing in stocks is all about research, experience, knowledge and the risk-taking ability of the investor.

Mutual Funds for 2018

Large Cap Funds:

Large-cap funds invest in large cap companies which are big, well-established companies of the equity market. These companies are strong, reputable, trustworthy, and generally are top 100 companies in a market by market cap.

The ideal investment duration for these funds: 4 years and above.

The best mutual fund scheme in this category are:

  1. SBI Bluechip Fund
  2. Mirae Asset India Equity Fund 
  3. Reliance Large Cap Fund

Mid Cap Funds:

Mid-cap funds invest in compact companies of the equity market, falling between small and large cap companies. Companies that are ranked between 100 and 250 by market capitalization are called mid cap companies.

The ideal investment duration for these funds: 6 years and above.

The best mutual fund scheme in this category are:

  1. Aditya Birla Sun Life Small & Midcap Fund
  2. L&T Midcap Fund
  3. Mirae Asset Emerging Bluechip Fund 

Small Cap Funds:

Small-cap funds invest in small companies of the stock market. This list comprises of the companies apart from large and mid-cap companies in a market. These funds give high returns but are highly risky mutual funds.

The ideal investment duration for these funds: 7 years and above.

The best mutual fund scheme in this category are:

  1. L&T Emerging Businesses Fund
  2. HDFC Small Cap Fund – Direct

Multi-Cap Mutual Funds

In these funds, the capital is invested in companies across different sectors and of different capitalization. Multi-cap funds are used to minimize the risk and diversify the investment.

The ideal investment duration for these funds: 5 years and above

The best mutual fund scheme in this category are:

  1. Motilal Oswal Multicap 35 Fund
  2. Aditya Birla Sun Life Advantage Fund
  3. DSP BlackRock Opportunities Fund

Happy Investing!

Disclaimer: the views expressed here are of the author and do not reflect those of Groww.