HDFC AMC makes stellar debut, stock settles 65% above the issue price

Shares of HDFC Asset Management Company (AMC) made a stellar debut on the bourses on Monday, settling at Rs 1815 per share, up a whopping 65% higher against their issue price of Rs 1,100 per share.
HDFC AMC, the HDFC group company got listed at Rs 1,739, up 58% against its issue price on the BSE. On the NSE, the stock opened  57% higher at Rs 1,726. It touched high of Rs 1,843 on the BSE, and Rs 1,844 on the NSE.

The Rs 28 billion initial public offering (IPO) of HDFC AMC got a strong response from all categories of investors. The issue was oversubscribed 83 times, the exchange data shows. The non-institutional or high net-worth individual (HNI) portion of the IPO was subscribed 195 times. The portion reserved for qualified institutional buyers (QIB) was subscribed by 192 times and of retail individual investors by 6.73 times.

Many brokerages are optimistic about the HDFC AMC IPO, citing strong brand value, large-scale operations and robust outlook. The issue closes on Friday.

The objects of the offer were to achieve the benefits of listing the equity shares of the company on the stock exchanges. The listing of equity shares will enhance visibility and brand image and provide liquidity to existing shareholders.

HDFC Asset Management Company), a joint venture between Housing Development Finance Corporation (HDFC) and Standard Life Investments (SLI), is an asset management company in India. The company offers a large suite of savings and investment products across asset classes, which provide income and wealth creation opportunities to its customers. It also provide portfolio management and segregated account services, including discretionary, non-discretionary and advisory services, to high net worth individuals (HNIs), family offices, domestic corporates, trusts, provident funds and domestic and global institutions.

“At a price band of Rs. 1,095-1,100 per share, the issue is priced at 31.4x FY18 EPS. It has very healthy RoNW of 33.4%, which is among the highest in the industry. Premium valuations are justified by healthy RoNW, the AMC’s leadership position, reputed pedigree and structural growth trend given the financialisation of household savings in India,” the brokerage firm Sharekhan said in an IPO note.

“Favorable perception of HDFC AMC’s brand, a higher mix of high-margin equity oriented AUM, consistent RoE of around 40%, a wide distribution network (209 branches and >65,000 distributors), and increasing dividend payouts work in HDFC AMC’s favor. At the upper price band, HDFC AMC is valued at 32x FY18 EPS (20% premium to its only listed peer Reliance Nippon AMC), which is justified given the strong parentage, consistent market leadership and superior growth,” Motilal Oswal Securities said in a note.

 
INVESTING STRATEGY

So, should you stay invested in the stock after a bumper listing. Analysts suggest investors looking to make short-term gains in the stock should exit given the stretched valuation.

"The stock is trading at an expensive valuation - at around 53x on TTM basis. even if we assume a healthy growth of 30%, even then the P/E works out to around 41x. Definitely in short-to-medium term, the valuation is stretched. Short-term investors can book profits in a phased manner. However, those willing to wait over two to three years can continue to hold," said G Chokkalingam, founder and managing director at Equinomics Research & Advisory.

AK Prabhakar, head of research at IDBI Capital says "If somebody is interested to invest for five years, then they should stick on to the stock. Though, around 80% of the new listings underperform, this stock has a very good brand name. HDFC in AMC business is not doing good but the brand name will give you returns in the long term. However, if you are looking for a one year term, then it is better to take your money out. In HDFC packet, HDFC Life or HDFC Bank has a better opportunity even if they are expensive, the growth is visible, however in the AMC business, I don't think that kind of growth is likely to come".