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Aditya Birla Sun Life AMC IPO: Facts, Stats, Opportunities and Risks

Editor, TRANSFIN.
Oct 9, 2021 9:46 AM 4 min read
Editorial

Monday will mark the IPO listing date of Aditya Birla Sun Life AMC Ltd. (ABSL), the largest non-bank affiliated AMC in India by quarterly averages assets under management (QAAUM),

The company’s IPO, which closed last Friday, was subscribed 5.25x, generating bids worth ₹10,395cr ($1.39bn) at the upper price band.


Fast Facts

  1. The public issue saw ₹2,768cr ($370.5m) being raised in an offer for sale (OFS) by promoters.
  2. The IPO opened on September 29th and closed on October 1st. The basis of the allotment date was October 6th while the listing date is October 11th.
  3. The price band was ₹695-712 ($9.3-9.53) per equity share.
  4. At the higher price band, the company sees a P/E multiple of 39x.
  5. As the listing date approaches, the grey market premium (GMP) has slightly increased from ₹20 ($0.26) to ₹30 ($0.4). Its shares were trading at ₹742 ($9.9) in the grey market, a 4.2% premium over the upper end of the final issue price per share.
  6. The portion reserved for NIIs was subscribed 4.39x while the portions for retail investors and QIBs were subscribed 3.24x and 10.36x respectively.
  7. Post-issue, the promoter holding will fall to 86.5% from 100%.
  8. Link to DRHP

 

About the Company

As its name suggests, ABSL is a joint venture between Aditya Birla Capital Limited and Sun Life (India) AMC Investments Inc.

Established in 1994, the company is the investment manager of Aditya Birla Sun Life Mutual Fund, and also operates multiple alternate strategies including Portfolio Management Services, Real Estate Investments and Alternative Investment Funds.

The fund provides sector-specific equity schemes, fund of fund schemes, hybrid and monthly income funds, debt and treasury products and offshore funds. It is one of the leading asset managers in the country, with a total AUM of over ₹2,936bn ($39.32bn) as of June 30th 2021.

As of the end of CY20, ABSL managed 135 schemes comprising 35 equity, 93 debt, two liquid schemes, five ETFs and six domestic FoFs. It is the largest non-bank affiliated AMC by QAAUM and by monthly average assets under management (MAAUM), it is the fourth-largest among its peers.

 

Macro and Money Matters

The company’s revenue fell from ₹1,407cr ($188.42m) in FY19 to ₹1,191cr ($159.5m) in FY21. Net profit during the same period grew by nearly 18% due to lower expenses. The company’s return on net worth (RoNW), meanwhile, stood at 30.9% in FY21 vis-a-vis 15-28% of already-listed peers.



As of June this year, ABSL had a market share of 8.3% in the mutual fund industry. It has over 66,000 distributors covering more than 280 locations with a total folio count (accounts) of 7.2 million. The folio growth between March 2016 and March 2021 was 19% annually, beating the industry average by 4 bps.

  

Sector Overview and Opportunities

The Indian mutual fund industry has been enjoying years of steady growth, driven by a growing investor base, rising internet penetration, and an expanding middle-class.

Mutual fund AUM as a % of GDP jumped from 4.3% in FY02 to c. 11% in FY20. Over the past decade, QAAUM of the industry has grown at a CAGR of 13.7%. However, with penetration  levels well below those in other economies at only 12.1%, much of the potential market remains untapped.

FYI: Click here to read our 10-point beginners’ guide to mutual funds.

By investor profile, the mutual funds are divided more or less equally between individual (retail and HNIs) and non-individual (mainly corporates) investors. These investors are also primarily located in the T-30 (top 30) cities, with contributions from smaller towns remaining a fraction of the former.

Additionally, while most (80% as on December 2020) individual investors buy mutual funds via regular plans (i.e., through an intermediary), most institutional investors (75.26%) resort to direct plans (buy directly from the fund house.)

India is a high savings economy - and is expected to remain so in the near-term. With an increase in financial literacy, a bullish market, and GoI’s efforts to fight the shadow economy, the share of financial assets as a proportion of net household savings is expected to increase over the next five years. And the rise in financial assets is also expected to further boost investments under mutual funds.

Between March 2015 and December 2020, the mutual fund industry’s folios increased by c. 53 million to c. 94 million, which translates to a CAGR of about 18%. This was driven mostly by individual investors (retail and HNIs). At the same time, the average ticket size has also increased from ₹1,35,000 ($1,807.84) as of FY15 to ₹1,76,000 ($2,356.89) as of CY20.

 

Risks

About 90% of the ABSL's revenue from operations comes from management fees charged on the assets managed. Naturally, the company's numbers are dependent on the value and composition of the AUM. Any defaults, withdrawals, redemptions or broad decline in the equity markets would grossly affect the company's margins.

Moreover, a large portion of ABSL's AUM is concentrated in a few schemes. As of December 31st 2020, its top five equity-oriented schemes constituted 62.35% of the total equity-oriented QAAUM while its top five debt-oriented schemes constituted 59.59% of the debt-oriented QAAUM.

Furthermore, as with any asset manager, ABSL’s performance is inadvertently and intricately tied to that of the larger economy. Macroeconomic trends have not been the best of late, considering the pandemic and rising inflationary fears. However, Indian equity markets - like their peers abroad - have nonetheless been on a bullish run, one that is expected to last a while. However, should the bubble burst and the bull party end anytime soon, expect ABSL’s schemes to take a direct hit.

However, given the company's sheer size, well-recognised promoters, strong portfolio, healthy overall performance, and the positive outlook for the mutual industry as a whole, it’s no wonder that the initial offer was oversubscribed last week.

FIN.
 

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