UTI AMC is coming out with an IPO to raise Rs 2,160 crore through an offer for sale. The price band has been set at Rs 552-554 per share for a lot of 27 shares. The issue opens on 29th September 2020 and closes on 1st October 2020. The company manages Mutual Funds along with other asset management services such as PMS, Retirement Funds, Offshore Funds and AIFs and has a total AUM over Rs 9.7 lakh crore as of FY20, with Mutual Fund AUM at Rs 1.3 lakh crore (June 2020). Based on a growing AUM size, diversified asset management services and shift to better Asset Mix coupled with attractive valuations, we recommend investors to SUBSCRIBE to this IPO for listing gains.
UTI Asset Management Company Limited is the 2nd largest Asset Management Company in India in terms of Total AUM and the 8th largest asset management company in India in terms of mutual fund QAAUM as of June 30, 2020.
As of June 30, 2020, the total QAAUM for its domestic mutual funds was Rs 133,630 crore, while Other AUM was Rs 849,390 crore. With 1.09 crore Live Folios as of March 31, 2020, its client base accounts for 12.2% of the approximately 8.97 crore folios that are managed by the Indian mutual fund industry. As of June 30, 2020, UTI AMC manages 153 domestic mutual fund schemes and possesses a wide distribution network, most of it being located in B30 cities.
In 2019, UTI AMC was approved to manage 55% of the Central Board of Trustees, EPF, accounting for Rs 591,660 crore, or 84.9% of its PMS AUM as of June 30, 2020. Their AUM for the PMS business increased from Rs 115,850 crore in March 31, 2018 to Rs 689,060 crore in March 31, 2020, representing a CAGR of 143.9%.
The Consolidated Revenues equaled Rs 890 crore, Rs 1,080 crore and Rs 1,160 crore for the fiscal years ended March 31, 2020, 2019, and 2018, respectively. PAT equaled Rs 280 crore, Rs 350 crore and Rs 410 crore for the fiscal years ended March 31, 2020, 2019 and 2018, respectively. Its profits are robust and this is visible by its average NPM of 32%. The company has generated stable earnings over the 3-year period with ROE at 12% and ROA at 11.4%.
The company has been increasing the share of Equity Mutual Funds, growing from 30% of AUM in 2018 to 42% of AUM in 2020. This is beneficial as AMCs generate highest fees from equities and see higher stickiness among clients. In other AUM, the company has seen a significant rise in assets in excess of 400%, boosting the asset base.
UTI AMC is getting listed at a very attractive valuations, with the P/E being at 25.7x, lower than the industry average of 36.8x. The company also granted ESOPs in 2020 at a price of Rs 728 per share, which is higher than the IPO price. Moreover, it trades at 18% of its Market Cap/Equity QAAUM ratio indicating cheaper valuations as compared to veterans such as HDFC AMC, which currently trade at 29%. These factors indicate that the IPO is attractively valued and offers decent upside.
The company has lost total Average AUM market share from 8.2% in 2018 to 5.6% in 2020 which indicates that other AMCs have been growing faster than UTI. Hence, there is a need to undertake measures to arrest market share loss.
UTI has a higher share of Expenses as % of AUM as compared to other AMCs which has resulted in lower margins for the company vs peers. The management has undertaken several cost control measures to ensure costs reduce and margins improve over time. The continuation of higher expenses will result in the company delivering lower margins.
AMCs are very sensitive to changes in regulations as they are governed by SEBI. Any changes around funds and schemes can significantly impact the revenues and profitability of the company.
Tailwinds such as growing AUM size, diversified Asset management Services, shift to better Asset Mix and undervaluation make UTI a good bet for listing gains.
You can also watch an exclusive analysis by our research analyst Mr. Anuragh Lodha to know some important business insight and what he recommends about this issue. Click here to watch now.