HDFC MF IPO subscribed 83 times; bids at Rs 1.72 trn, second highest ever

Investors scrambled to get a piece of HDFC Mutual Fund, the country’s most profitable asset manager, with its maiden offering witnessing more than 80 times demand the shares on offer. The 18.8-million share offering got bids for 1.56 billion shares worth Rs 1.72 trillion. Investment bankers said this is the second-highest demand ever seen for a domestic initial public offering (IPO) after Coal India. The state-owned miner’s Rs 155-billion mega offering in 2010 had seen bids worth Rs 2 trillion. Last year’s IPO of Avenue Supermarts had generated bids worth Rs 1.4 trillion. The D-Mart retail chain operator’s Rs 18.7-billion IPO was subscribed over 100 times. HDFC MF’s Rs 28-billion IPO was entirely an offer for sale by parent Housing Development Finance Corporation (HDFC) and UK’s Standard Life, who pared 4.05 per cent and 7.96 per cent stake, respectively.

Shares reserved for a qualified institutional buyer (QIB) were subscribed 192 times, while those meant for high net-worth individuals (HNIs) saw 195 times subscription. The retail quota was subscribed nearly seven times.

“There were three key reasons behind the success of the HDFC MF IPO—parent HDFC’s strong pedigree; HDFC MF’s large equity asset base and attractive pricing,” said  V Jayasankar, head of equity capital markets, Kotak Mahindra Capital, one of the banker to the issue.

HDFC MF manages assets worth Rs three trillion, of which around 51 per cent are equity assets. HDFC MF is the country’s second-biggest fund house in terms of overall assets and biggest in terms of equity-oriented assets.

“Post demonetisation, the mutual fund industry has seen huge traction. Structurally it is a good industry to be part of and HDFC MF is the leader. Also, the company comes from HDFC group stable which has made a lot of money for investors,” said Salil Pitale, co-head of investment banking, Axis Capital, one of the 11 banks that managed the share sale.

The assets under management (AUM) for the mutual fund industry nearly doubled in the past two years from Rs 12 trillion at the end of 2015-16 to Rs 23 trillion at the end of 2017-18. Increase in the share of financial assets in household savings and rising preference of investing through mutual funds have given an impetus to this growth.

Most brokerages had recommended their clients to subscribe to the HDFC MF offering.

“Huge potential of MF industry growth, strong return ratios, asset light business, higher dividend payout ratio and track record of superior investment performance, makes us positive on this IPO,” Angel Broking had said in a note.

The IPO price band was Rs 1,095 to Rs 1,100 per share.  At Rs 1,100, HDFC MF is valued at 32 times its 2017-18 earnings and 11 times its 2017-18 book value. The fund house’s market value works out to 7.6 per cent of its AUM.