Aditya Birla Sun Life AMC Ltd - IPO Note

Finance - Asset Management

Aditya Birla Sun Life AMC Ltd - IPO Note

Finance - Asset Management

Price range
Rs. 695-712
Issue Period:
Sep 29, 2021
Oct 01, 2021
Rating
Subscribe
September 29, 2021

Stock Info

Sensex
59413.27
CNX Nifty
17711.30
Face value (Rs.)
5
Market lot
20
Issue size
Rs. 2768 cr.
Public Issue
3.89 cr. shares
Market cap post IPO
20505 cr.
Equity Pre - IPO
144 cr.
Equity Post - IPO
144 cr.
Issue type
OFS

Shareholding (Pre IPO)

Promoters
100%
Public
0
Source: Ace equity, StockAxis Research

Shareholding (Post IPO)

Promoters
86.5%
Public
13.5%
Source: Ace equity, StockAxis Research

Strengths

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.

Risks

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.

Company Description

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

Valuation

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

Key Information

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.

Financial Statement

Profit & Loss Statement:- (Consolidated)

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%