Significant growth in QAAUM since 2016:
ABSLAMC has maintained its position as the largest non-bank affiliated AMC in India
by QAAUM since March 31, 2018. Their total QAAUM grew at a CAGR of 14.55% from Rs
1,365.03 bn as of March 31, 2016 to Rs 2,692.78 bn as of March 31, 2021, and further
to Rs 2,754.54 bn as of June 30, 2021. The Company’s equity-oriented Monthly
Average Assets Under Management (MAAUM) grew at a CAGR of 24.94% from Rs 323.45
bn as of March 31, 2016 to Rs 984.80 bn as of March 31, 2021, and further to Rs
1,080.44 bn as of June 30, 2021. Correspondingly, its share of equity-oriented MAAUM
in total MAAUM increased from 23.66% as of March 31, 2016 to 38.09% as of June 30,
2021. This 14.43% increase in equity mix was greater than the industry increase
of 13.65% over the same period, and was the second highest increase among the five
largest AMCs in India by MAAUM, according to CRISIL.
Strong promoter background and experienced management team:
ABSLAMC benefits from the strong track record, reputation and experience of its
Promoters, ABCL (an Aditya Birla group company) and Sun Life AMC, and their respective
affiliates, which have enabled it to build a brand that has a strong recall. The
Company’s business is managed by a well-qualified senior management team that
has significant experience and deep understanding of all aspects of its business
and operations. Several members of its senior management team have been with ABSLAMC
for over 15 years and have, together, been instrumental in the growth and success
of the Company thus far. ABSLAMC’s investment performance is further supported
by its stable and experienced investment teams with extensive industry experience
and an average of 16 years in their respective fields. Its investment teams include
experts and professionals with ground level knowledge of the asset management and
financial services industries. A. Balasubramanian, its Managing Director and CEO,
was recognized as “CEO of the Year” in both 2018 and 2020, and the Company’s
CIO, Mahesh Patil, was awarded “CIO of the Year – Equity” in 2018,
by Asia Asset Management Best of the Best Awards
Diversified product portfolio along with customized offerings:
As of June 30, 2021, the Company managed 112 mutual fund schemes, several of which
have recorded superior performance compared to industry averages. ABSLAMC also provides
portfolio management services, offshore funds and alternative investments. Further,
its fund offerings can be customized to meet an individual’s specific financial
goals in the form of savings solutions, regular income solutions, tax saving solutions
and wealth solutions. The Company consistently demonstrates strength in its variety
of product offerings and has a long history and track record of innovation in schemes,
with certain of its schemes being the first of their kind in India.
Focus on increasing geographic reach and strengthen relationships with its distributors:
The Company has established a geographically diversified pan-India distribution
presence that is not only extensive but multi-channeled, with a significant physical
as well as digital presence. As of June 30, 2021, ABSLAMC had a presence in 284
locations, comprising 194 branches in India (and three outside India). The Company’s
capability to build deep and strong relationships with distributors is demonstrated
by its highly diversified distribution network, which included over 66,000 KYD-compliant
Mutual Fund Distributors (“MFDs”) over 240 national distributors and
over 100 banks/financial intermediaries. The diversification of its distribution
base has led to a reduction in the concentration of AUM sourced from the top 10
distributors (in terms of AUM sourced) from 49% in the financial year 2016 to 37%
in the financial year 2021. The Company’s MFDs, national distributors and
banks/financial intermediaries contributed to 30.18%, 14.37% and 8.59%, respectively,
of its total QAAUM (excluding ETFs) as of June 30, 2021, while its direct marketing
efforts contributed to 46.86%. ABSLAMC’s investment in MFDs has led to an
increase in its equity-oriented QAAUM from MFDs from Rs 127.54 bn as of March 31,
2016 to Rs 519.32 bn as of June 30, 2021.
Use of Technology to Increase Customer Acquisition and Enhance Customer Experience:
The Company has a history of innovation in the mutual fund area in the use of technology
to service its investors. ABSLAMC is committed to enhancing its digital platforms
and expanding its online reach, as it believes technological developments play an
important role in all aspects of the Company’s business and investor interaction,
from onboarding to self-service, engagement and executing transactions. The Company’s
online engagement has seen significant growth in recent years, and digital transactions
represented 89.10%, 87.75%, 77.01% and 70.92% of its total transactions (excluding
SIP and STP installments) for the three months ended June 30, 2021 and the financial
years 2021, 2020 and 2019, respectively. Between the financial year 2020 and the
financial year 2021, the number of investors that ABSLAMC added through digital
channels increased from 63.66% to 80.98%. ABSLAMC’s omnichannel easy-to-use
end-to-end initiatives led to an increase in AUMs and uninterrupted service during
the financial year 2021, despite COVID-19 related disruptions in India and other
countries.
Profitability is linked to AUM growth:
The significant majority of ABSLAMC’s revenue comes from management fees charged
on the assets they manage. Fees are calculated and charged to investors as a percentage
of the AUM of the schemes managed by the company. Any decrease in such AUM will
cause a decline in fees and therefore revenue from operations and, consequently,
net profit.
Underperformance of investment products:
Underperformance of investment products due to slow-down in economy, inability to
retain key managers etc may hinder the ability to grow AUM of the schemes managed
and in some cases, may contribute to a reduction in AUM managed by ABSLAMC. Consequently,
underperformance by of funds may adversely affect results of operations and reputation.
Credit risk related to debt funds:
ABSLAMC’s schemes are exposed to credit risks in relation to their investments,
as issuers of the fixed income securities owned by such schemes may default on their
obligations, including in respect of principal and interest payments. The value
of the debt portfolio could be affected by changes in the credit rating or actual
or perceived creditworthiness of an issuer of fixed income securities that they
own, or a deterioration of credit markets as a whole. Losses sustained by such schemes
as a result of defaults by, or a decline in the credit rating or actual or perceived
creditworthiness of issuers of fixed income securities may result in decreases in
AUM, revenue and profit, which may have an adverse effect on financial condition
and cash flows.
IPO is completely an OFS:
The Company will not receive any proceeds from the offer and the Selling Shareholders
will be entitled to the entire proceeds after deducting the offer expenses and relevant
taxes.
Promoter stake post issue will stand at 86.5%:
As per SEBI norms, minimum public shareholding of a company has to be 25% post listing.
Considering promoter stake of ABSLAMC post listing will stand at 86.5%, there will
be an overhang of more selling from promoters, which can limit the upside potential
of stock price.
Valuation at par with peers:
At the upper price band of Rs 712, the IPO is valued at 39x FY21 EPS, which looks
fairly priced when compared to its peers Nippon Life & UTI AMC. This leaves
little scope for price appreciation in the near term.
Incorporated in 1994, Aditya Birla Sun Life AMC (ABSLAMC) is a joint venture between Aditya Birla Capital and Sun Life AMC. It is ranked as the largest non-bank affiliated AMC and among the four largest AMCs in India by Quarterly Average Assets Under Management (QAAUM). ABSLAMC managed total AUM of Rs 2,936.42 bn under its suite of mutual fund, portfolio management services, offshore and real estate offerings, as of June 30, 2021. ABSLAMC managed 118 schemes comprising 37 equity schemes, 68 debt schemes, two liquid schemes, five ETFs and six domestic FoFs. In addition, ABSLAMC provides portfolio management services, offshore and real estate offerings and managed total AUM of Rs 115.15 bn as part of such services, as of June 30, 2021. ABSLAMC caters to a wide range of customers from individuals to institutions through its pan-India network and offering of customer solutions, which positions it well to attract a large segment of the Indian mutual fund market across varying customer requirements and risk profiles and to develop a broad customer franchise with a strong retail customer base
In the recent years, AMC industry has seen robust growth on the back of a growing investor base due to increasing penetration across geographies and advancement in technology platforms. With global economy on the verge of recovery and liquidity in the system, the AMC industry will continue to witness growth. At the upper price band of Rs 712, the IPO is valued at 39x FY21 EPS, which looks fairly priced when compared to its peers (Nippon Life & UTI AMC). However, the company has potential to grow at a steady pace; hence, we recommend SUBSCRIBE to the IPO for long term perspective.
Peer comparison (Rs crore) | FY19 | FY20 | FY21 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Company | Revenues | EPS | ROE (%) | Revenues | EPS | ROE (%) | Revenues | EPS | ROE (%) | P/E |
ABSLAMC | 1327 | 16 | 37% | 1160 | 17 | 38% | 1068 | 18 | 33% | 39 |
HDFC AMC | 1915 | 44 | 35% | 2003 | 59 | 36% | 1853 | 62 | 30% | 49 |
Nippon Life India | 1479 | 8 | 20% | 1201 | 7 | 16% | 1062 | 11 | 25% | 39 |
UTI AMC | 986 | 27 | 15% | 834 | 24 | 12% | 941 | 28 | 13% | 38 |
Use of Proceeds:
The total issue size is of Rs 2768 crores, an offer for sale. The objects of the
Offer are (i) achieve the benefits of listing the Equity Shares on the Stock Exchanges
and (ii) to carry out the Offer for Sale of up to 38,880,000 Equity Shares by the
Selling Shareholders. The Company will not receive any proceeds from the offer and
the Selling Shareholders will be entitled to the entire proceeds after deducting
the offer expenses and relevant taxes.
Book running lead managers:
Axis Capital Limited, BofA Securities India Limited, Citigroup Global Markets India
Private Limited, HDFC Bank Limited, ICICI Securities Limited, IIFL Securities Ltd,
JM Financial Consultants Private Limited, Kotak Mahindra Capital Company Limited,
Motilal Oswal Investment Advisors Pvt Ltd, SBI Capital Markets Limited, Yes Securities
(India) Limited
Management:
A Balasubramanian is the Managing Director and Chief Executive Officer of the Company
and has been associated as an employee of ABSLAMC since 1994. He has been the Chief
Executive Officer of the Company since 2009 and was the Chief Investment Officer
from 2006 to 2009. The Company’s business is managed by a well-qualified senior
management team that has significant experience and deep understanding of all aspects
of its business and operations.
Yr End March (Rs Cr) | FY19 | FY20 | FY21 |
---|---|---|---|
Net Sales | 1327.00 | 1160.00 | 1068.00 |
Fees & commission expense | 144.00 | 75.00 | 47.00 |
Employee Cost | 277.00 | 242.00 | 241.00 |
Other Expenses | 302.00 | 215.00 | 179.00 |
EBITDA | 604.00 | 628.00 | 601.00 |
EBITDA Margin | 46.00% | 54.00% | 56.00% |
Depreciation & Amortization | 32.00 | 37.00 | 37.00 |
EBIT | 572.00 | 591.00 | 564.00 |
Other Income | 80.00 | 75.00 | 138.00 |
Interest & Finance Charges | 6.00 | 5.00 | 6.00 |
Profit Before Tax - Before Exceptional | 646.00 | 661.00 | 696.00 |
Tax Expense | 199.00 | 166.00 | 170.00 |
Effective Tax rate | 31.00% | 25.00% | 24.00% |
Net Profit | 447.00 | 495.00 | 526.00 |
Net Profit Margin | 34.00% | 43.00% | 49.00% |