HDFC Asset Management Company is seeking a valuation more than twice that of its close rival Reliance Mutual Fund in its maiden offering later this year.
Housing Development Finance Corporation and Standard Life are looking to raise about Rs 35 billion by selling a little over 10 per cent stake in asset manager's initial public offering (IPO). This would value the exchange at about Rs 350 billion. Reliance Nippon Life Asset Management, which got listed in November, is currently valued at Rs 157 billion.
According to experts, the fund house is commanding a premium on account of its brand name and track record of consistently being one of the most profitable AMCs in the country. The AMC clocked a net profit of Rs 550 crore in FY17 and Rs 478 crore the year before.
"HDFC MF has high equity allocation and has demonstrated healthy profit growth in the past few years," said Kaustubh Belapurkar, director - fund research, Morningstar Investment Advisor India.
As of December 2017, HDFC Mutual Fund topped the list with 15.4 per cent share in terms of assets of equity-oriented funds (including balanced funds and equity exchange traded funds) it managed, as per its draft prospectus. ICICI Prudential MF had the second largest share with 14.7 per cent and 14.5 per cent based on month-end and quarterly average AUM respectively as on December 2017.
Equity assets are considered to be sticky as they are generally held for longer periods compared with debt assets.
"The valuations for AMCs may not look cheap at present but it makes sense for investors to own these stocks from a long-term perspective. Indian MFs' share as a percentage of financial savings is 3.5 per cent while the global average is around 40-50 per cent. That itself hints at the potential for growth," said Feroze Azeez, deputy CEO, Anand Rathi Private Wealth Management.
While HDFC Mutual Fund has the highest share of equity assets, its position in the equity category can also be partly attributable to its high market share in individual investor category, which predominantly invests in equity-oriented funds. As of December 2017, HDFC Mutual Fund had the highest market share (16 per cent) among individual investors' assets, followed by ICICI Prudential Mutual Fund (14.7 per cent) and Aditya Birla Sun Life Mutual Fund (9.9 per cent).
Of the Rs 4.2 trillion of assets out of the B15 cities, the top five AMCs managed around 63 per cent of the AUM. Of this, SBI Mutual Fund had the highest market share of 14.2 per cent as of December 2017, followed by HDFC Mutual Fund (12.8 per cent) and ICICI Prudential Mutual Fund (12.4 per cent).
Since it began operations, HDFC MF has taken the inorganic route twice to grow its asset base. In late 2013, HDFC MF had acquired the schemes of Morgan Stanley Mutual Fund, while in June 2003 it had acquired Zurich India MF.
The MF sector has got a boost in the recent past from record inflows in equity schemes through systematic investment plans. India's mutual fund sector now manages about Rs 22 trillion worth of assets, of which nearly Rs 7 trillion is equity. This is nearly double the Rs 12 trillion it managed two years ago.