Parekh Says Enough Left On The Table For HDFC AMC Investors To Make Returns

HDFC Asset Management Company Ltd., the second-largest in India, is seeking a substantial premium to the only listed peer in its initial public offering. Still, the issue is conservatively priced, according to Deepak Parekh, chairman of parent HDFC Ltd.

“Leave enough money on the table so that the investors are there not to finance you but to make a return,” Parekh said in an interview with BloombergQuint. “We feel we have some money on the table for the investors, we have not fully priced the IPO, we are always conservative in pricing the issue.”

HDFC and U.K.’s Standard Life Insurance will sell 12 percent stake in a three-day offer that opens on July 25 to raise Rs 2,800 crore, taking the fifth company from the HDFC Group public. HDFC last listed its life insurance business in November to raise nearly Rs 8,700 crore.

HDFC will hold 52.92 percent while Standard Life will hold 30.03 percent after selling shares. HDFC will pare its holding to 50.1 percent and Standard Life to 24.9 percent in the next three years to meet the regulator’s minimum public shareholding requirement of 25 percent, Parekh said.

HDFC AMC Vs Reliance Nippon

In October, Reliance Nippon Life Asset Management Company Ltd., India’s fourth-largest asset manager, raised nearly Rs 1,500 crore from its IPO. The offer, priced at an upper limit Rs 252 apiece, was subscribed over 83 times and debuted on the National Stock Exchange Ltd. at a 17 percent premium. The stock is currently trading below its issue price at Rs 221.20 apiece, valuing the company at a little over Rs 13,500 crore.

HDFC AMC’s offer, in comparison, is priced between Rs 1,095 and Rs 1,100 apiece, valuing it at Rs 23,318 crore at the upper end.

“We have almost Rs 65,000 crore higher AUM. More importantly, our equity business is significantly larger,” Milind Barve, managing director and chief executive officer of HDFC AMC, told BloombergQuint. “We are almost Rs 56,000-60,000 crore ahead on the equity AUM. Our equity AUM is almost 50 percent or more.”

Reliance Nippon is a “great company but it is distinctly different from HDFC AMC”, Barve said. If we just compare the operating profit from the core asset management business, ours is almost 90 percent higher than what is being given by Reliance Nippon.”