Should you subscribe to Aditya Birla Sun Life AMC IPO?

The Rs 2,768.26 crore IPO (initial public offering) of Aditya Birla Group and Sun Life (India) AMC Investments Inc, Aditya Birla Sun Life Asset Management Company will open for subscription tomorrow. The three-day issue will close on Friday, October 01. The asset management company has been fixed at Rs 695-712 per share having a face value of Rs 5 per share. The entire is a pure offer for sale (OFS) of 17,244,328 shares by its existing shareholders and promoters. Aditya Birla Capital will sell more than 28.5 lakh shares while Sun Life (India) AMC Investments Inc will offload more than 3.6 crore equity shares through an offer for sale.

Investors can bid for a minimum of 20 equity shares and in multiples, thereafter, translating to a minimum bidding amount of Rs 14,240 at the higher end of the price band. A retail investor can at max apply for 14 lots or 280 shares for Rs 1,99,360. 50% of the total offer has been reserved for qualified institutional buyers, up to 35% for retail investors, and the rest 15% for non-institutional buyers.

Aditya Birla Sun Life AMC is a joint venture between Aditya Birla Capital and Sun Life AMC. The company managed total AUM of Rs 2,93,642 crore under its suite of mutual fund (excluding domestic fund-of-funds (FoFs)), portfolio management services, offshore and real estate offerings, as of June 2021.

Grey market chatter

According to grey market observers ahead of the issue shares of Aditya Birla Sun Life AMC are quoting at Rs 742 apiece marking a premium of 4.2% or Rs 30 per share.

“The AMC arm of Aditya Birla group is amongst the top 4 AMCs in India by QAAUM (Quarterly Average Assets Under Management). As of June 30, 2021, it managed a total AUM of Rs 2936.42 billion. With the rise in financial literacy and awareness, we witnessed a huge growth in aggregate industry AUM in recent periods. The fund house has more weightage on debt funds which have comparatively lesser margins as compared to equity schemes. But it looks like the company is tilting the focus on high-margin products,” said Abhay Doshi of Unlisted Arena.

At the upper band of Rs 712, the issue looks priced in line with its listed peers. On the basis of FY21 earnings, the issue is asking a PE (Price to equity) multiple of 39x which seems moderate leaving a little room for short-term investors. The long term prospects of the company tend to be impressive owing to huge under-penetration in capital markets but at the same time, there are many alternatives present to play this theme, Doshi added.

Brokerage view

Here is what brokerages have to say about Aditya Birla Sun Life AMC IPO.

Angel One | Rating: Subscribe

Aditya Birla AMC has witnessed a steady growth in AUM (Asset Under Management) since 2016 and has also been constantly increasing the share of individual AUM within the mix. Moreover, the share of high margin Equity AUM has normalized to 36.5% of AUM in Q1FY2022 as compared to 30.5% of AUM from 30.5% of AUM at the end of FY2020. At the higher end of the price band, the AMC will be trading at a Market/AUM of 7.3x Q1FY22 Avg. AUM is at a discount to Nippon Life AMC and at a similar level to that of UTI AMC. Given the discount to Nippon AMC and strong growth prospects of the AMC due to a buoyant capital market, the brokerage firm would recommend to ‘Subscribe’ to the IPO.

Anand Rathi | Rating: Subscribe

At the upper end of the IPO price band, Aditya Birla Sun Life AMC is offered at P/E of 39x its FY21 earnings, with a market capitalization of Rs 20,505.6 crore. Given that the company is the largest non-bank affiliated AMC and among the four largest AMCs in India with well-recognized promoters, growing individual investor customer base, diverse product portfolio with high RoNW (return on Net Worth) of 30.87% in FY21.

Marwadi Shares & Finance | Rating: Subscribe

Considering the TTM (trailing twelve months) adjusted EPS (earnings per share) of Rs.20.27 on the post-issue basis, the company is going to list at a P/E (price to earnings) of 35.13 with a market cap of Rs 20,505.6 crore while its peers namely HDFC AMC and Nippon Life are trading at a P/E of 49.99 and 38.61 respectively.

The brokerage firm has assigned a ‘Subscribe’ rating to this IPO as the company is the largest non-bank affiliated asset manager in India with a diverse product portfolio and geographically diversified pan-India distribution presence. Also, the company is available at a reasonable valuation as compared to its peers.

Choice Broking | Rating: Subscribe

With supportive government policies, financialization of household savings, increasing penetration in the B30 cities, the macros of the domestic mutual fund industry are positive and provide huge scope for growth and development. At higher price band of Rs 712, the company is demanding a TTM P/E multiple of 35.1x (to its TTM EPS of Rs 20.3), which is at discount to the peer average of 38.3x. Moreover, based on FY24E earnings, the stock is demanding a P/E valuation of 29.4x, which seems to be attractive for a company with a RoE (Return on Equity) excess of 25%.

Dilip Davda – Primary market expert | Rating: May apply for long term

This offer was eagerly awaited by investors across the board. Though it has been posting the growth for bottom lines, based on financial parameters, the issue is fully priced. With the rising investments in stock markets and increasing numbers of Demat accounts, this company is poised for bright prospects ahead. Investors may park funds in this issue with a long term perspective.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)