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UTI AMC IPO Review: All You Need to Know

Editor, TRANSFIN.
Oct 2, 2020 5:24 AM 4 min read
Editorial

UTI AMC, the second-largest Asset Management Company (AMC) in India with average Assets Under Management (AUM) of ₹1.5L cr ($20bn) ended its ₹2,160cr ($308m) IPO subscription period today.

Investor response was lukewarm. The public issue was subscribed 27% on Day One, 79% on Day Two and 101% on the final day (i.e. today). The portion set aside for retail investors was subscribed 1.51 times and for employees at 0.8 times. The AMC also raised ₹644.64cr ($90.35m) from 67 anchor investors on Monday.

The price band for the issue was fixed at ₹552-554 per share.

With this listing, UTI AMC has become only the third mutual fund house to get listed (after Nippon India Mutual Fund and HDFC AMC).

 

Sparked by SEBI

Now, the AMC itself didn’t stand to receive funds from this IPO.

That’s because the listing was an offer for sale of existing shares, comprising 3,89,87,081 equity shares (=30.75% of total) by SBI, PNB, LIC, Bank of Baroda (BoB), T Rowe Price International etc.

These shareholders had to reduce their stakes in UTI AMC to below 10% to adhere to SEBI guidelines, which don’t allow for cross-holding between mutual funds to avoid conflicts of interest.

FYI: The UTI AMC holdings of SBI, LIC and BoB pre-issue stood at 18.24% each. Post-issue, their stakes would have fallen to 9.99%.

Another FYI while we’re at it: This isn’t the first time SEBI intervened in the mutual fund industry recently. Only this week, the regulator announced a slew of measures to make fund managers and AMCs more accountable. And in mid-September, it changed the asset allocation rules for multi-cap funds.

 

Fast Facts about UTI

Unit Trust of India’s (UTI’s) history is intricately linked to the history of the larger mutual fund industry. In fact, it was the first AMC in the country, set up by an Act of Parliament in 1963. It enjoyed complete monopoly until 1987, which was when the first non-UTI AMC was launched. In 2003, the company was split and UTI AMC as we know it came into being.

Today, it is the second-largest fund house in the country by AUM and the eighth-largest by quarterly AUM.

Besides catering to domestic mutual funds, it also provides portfolio management services (PMS) to institutional clients and high net worth individuals (HNIs). PMS are also provided to entities like Employees Provident Fund Organisation (EPFO), Postal Life Insurance (PLI) and National Skill Development Fund (NSDF). Another source of revenue for the company is through management of retirement funds, offshore funds and alternative investment funds.

Coming to financials, the company had reported a total income of ₹891cr ($121m) in FY20 with net profit of ₹276.5cr ($37.6m).

And as of the June quarter of this year, here are some other fast stats about UTI AMC:

Net worth = ₹2,834.92cr ($385.4m)

Book value per share = ₹224.45 ($3)

Average AUM for domestic mutual funds = ₹1.34Lcr ($18.2bn)

Average AUM for other verticals = ₹8.5Lcr ($115.5bn)

 

Opportunities

UTI AMC has significant clout due to its history and national footprint. It also has a sizable presence in “B30 cities” i.e. Cities beyond the top 30 for mutual funds. As mutual fund investment has grown more popular in India in recent years, new investors in the near-term can be expected to come from these tier-2 and tier-3 cities. The fund houses that have more infrastructure in these regions can invariably capitalise quicker and more efficiently.

The house also boasts multiple distribution channels with a wide reach and a broad and stable client base.

UTI IPO’s price band was also considerably low, being priced at a discount compared to other fund houses’ public offerings. 

 

Risks

UTI AMC offers relatively less Return on Equity (RoE) than its competitors. And its market share has gradually declined over the past few years on account of increased competition and underperformance of funds.

Its performance vis-a-vis profitability, revenue and net profit CAGR pales in comparison to its listed peers Nippon and HDFC AMC. Its revenue has declined 6% on a compounded basis over the past four FYs.

Moreover, several macroeconomic phenomena beyond the control of fund managers might affect fund performance. The pandemic is still raging and the national economy is still free-falling. Besides, a decline in equity markets would inadvertently lead to a fall in AUM - and thus revenues. It could also spark redemptions and withdrawals by volatility-wary clients.

Another risk factor may be the composition of UTI AMC’s portfolio. According to the company, the majority of its June quarterly average AUM for equity funds (active and passive) came just from a handful of funds. And concentrating your investment portfolio and banking too much on certain kinds of investments is always a risky endeavour.

(And it also defeats the diversification-is-good philosophy of investing in mutual funds in the first place!)

ICYMI: Recently, we also discussed the IPOs of Bengaluru-headquartered IT services firm Happiest Minds Technologies and Chennai-headquartered Computer Age Management Services (CAMS).

FIN.

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