HDFC AMC IPO May Have Little Bearing On HDFC’s Valuations

HDFC Asset Management Company Ltd.'s proposed initial public offer may not mean much for HDFC Ltd., given its relatively smaller contribution to the parent's valuation. Besides, analysts have already factored in higher valuations for HDFC AMC.

Analysts have valued HDFC AMC at about 5-6 percent of its estimated assets under management for the financial year 2018-19. This is higher than Reliance Nippon Life AMC's valuation, which currently trades at around 4.2 percent of AUM.

The company's IPO will only make difference to HDFC's stock price if the issue price implies valuations higher than 5-6 percent of its AUM. But even at such an issue price, HDFC AMC's contribution to HDFC Ltd.'s sum of parts-based valuation comes to just 2-6 percent. Analysts have valued HDFC AMC's shares between Rs 50-100 each. As a result, the IPO will have very little bearing on the overall valuation of HDFC.

The joint subsidiary of HDFC Ltd. and Standard Life Investments Ltd., received board approval on Saturday to sell shares through an IPO. HDFC and Standard Life Investments, too, have given an in-principle approval to offering shares to the public in one or more tranches, the company said in a statement. This could make HDFC AMC the second asset management company to list on the Indian exchanges after Reliance Nippon Life AMC listed in early November.

Shares will be offloaded through an offer for sale and there will be no fresh equity issuance. Following the dilution, HDFC's stake in the subsidiary will remain at least 50 percent, as compared to the existing 57.36 percent. For Standard Life, the stake will be pared to not below 24.99 percent, the statement said. Standard Life currently holds 38.2 percent in HDFC AMC.

The company wants to “effectively achieve” 25 percent stake dilution over three years, HDFC AMC Managing Director Milind Barve told BloombergQuint in an interaction.

The size of the offer, pricing and other details of the IPO will be released in due course, the statement said.

HDFC AMC is the second largest mutual fund company in the industry on the basis of average quarterly assets under management, according to data from Association of Mutual Funds in India. With AUMs of about Rs 269,781 crore, the AMC reported a net profit of Rs 178 crore in the first six months of the current financial year (which is just 3.2 percent of consolidated net profit of HDFC Ltd.).

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