UTI Asset Management Company Limited (UTI) is set to launch its IPO on 29TH September, 2020, the IPO will be open for subscription to the public for 3 days i.e 29-09-2020 to 01-10-2020.
UTI AMC is a registered AMC with SEBI, the oldest AMC erstwhile managed under the Unit Trust of India Act, it is the second-largest AMC in India in terms of Total Assets under the Management (TAUM) and the 8th largest AMC in India by mutual fund QAAUM.
In 2002, the Government of India enacted the UTI Repeal Act which repealed the UTI Act and bifurcated the Erstwhile UTI into two separate entities viz; the Specified Undertaking and the Specified Company being the Trustee Company in its capacity as a trustee of the UTI Mutual Fund, which was established as a SEBI registered mutual fund with SBI, LIC, BOB and PNB as its sponsors. The Company has an offer to sale of 38987081 equity share constituting 30.75% post-offer capital of the Company in the price band of Rs. 552-554 per share, via which existing shareholders of the Company are reducing their shareholding in the Company.
Detail of the offer is as under:
|Category of the investor||No./% of shares reserved for investors|
In accordance with SEBI guidelines the Company is not having any promoter existing shareholders of the Company may be deemed as the promoters for simple understanding by the retail investors. Detail of existing major shareholders and their shareholding is defined below:
|S.NO.||Name of the shareholder||Number of Shares held||% of shareholding|
|5||TRP (T. Rowe Price International Limited)||32964686||26.00|
Key Strengths of the Company:
1. Strong Growth of Mutual Fund Industry: The Company is engaged in the business of the Assets management, accordingly it derives it’s major revenue from the Mutual Fund Industry. The Mutual Fund Industry is one of the fastest-growing industries in India, which has witnessed an astonishing approx. 16.01% CAGR since 2000 and has clocked a growth of 14.9% from March 2015 to June 2020 which is depicted by the below charts:
|Category||Equity||Debt||Liquid / Money Market||Others||Total|
|March , 2015||3,652||5,292||2,774||169||11,887|
|March , 2016||4,183||5,871||3,269||212||13,534|
|March , 2018||9,582||8,134||4,562||773||23,052|
|March , 2019||10,210||7,152||5,916||1,206||24,484|
|Financial Year 2015- June2020 (CAGR)||20.5%||4.9%||16.8%||57.2%||14.90%|
The mutual fund industry in India had grown very rapidly in the past, however, the study states the journey is not over and the best is yet to come.
India’s AUM to GDP ratio is 11%, significantly lower than the world average of 63% which indicates how under-penetrated the market is and the scope of the growth in the segment is many folds.
2. Rising awareness among the young India: India is the nation of young people, we have one of the youngest population of the world. Young India is more tech-savvy, knowledgeable about personal finance as compared to their ancestors. A decade or two decades ago, Investments used to mean holding physical gold, term deposits with banks, acquiring the real estate, and investing in endowment plans sold by the Insurance Companies, however, the young India is exploring other means of investments and young Indians are not stuck to the old school of investment, they are investing in mutual funds through SIPs, which has resulted significant rise in the AUM size of the industry.
3. Valuation of the Company: UTI AMC is engaged in the business of assets management and two other renowned companies which are listed in the same segment of business are HDFC AMC and Nippon India AMC. UTI AMC will be available at a steep discount when compared to it’s peer companies, even if it is compared at the upper range of price band of the IPO, a comparison of PE ratio and price to book value ratio per share is given herein below:
|S.NO.||Key Indicators||UTI||HDFC AMC||Nippon AMC|
|1||EPS for the financial year 2019-20||21.53||59.37||6.78|
|2||Book Value as on 31.03.2020||217.88||189.34||42.36|
|3||Closing Price/IPO Price||554||2273||263.45|
|5||Price to book value ratio||2.54||12||6.21|
4. Having largest market share in B30 cities: The Company is having the largest market share and presence in B30 cities (Tier II) cities as per the Crisil and AMFI data, which differentiates it from it’s peers and give a clear edge over them. AMCs charge higher amount of fees for the management of portfolio in B30 cities as compared to the T30 cities.
5. High Dividend Payout Policy: The company had been regular in paying good dividend payouts to the shareholders of the company out of the profits made during the year as, the management of the Company in their red herring prospectus had claimed that they are going to maintain such dividend payout policy in the future and shall continue to distribute 50% or more profits as dividends to the shareholders in the future as well.
6. PMS service, Live folios, and Clientele of the Company: As per the CIBIL report, the Company is having 10.9 million live folios as on March 31, 2020, which represents to 12.2% market share of the approximately 89.70 millions of folios .
UTI is holding the largest market share in the management of assets of government agencies/ pension funds/provident funds i.e NPS, EPFO, NSDF etc. It manages 55% of the total corpus of the EPFO, which assures to investors that the Company is not going to be out of the business in the foreseeable future.
7. Key Financial Indicators of the Company: The Company has been generating good profits and free cash flow from it’s operations from the business and having no debt in the balance sheet, the Company had given bank guarantees to the extent of Rs. 304 Million to PFRDA, ESIC, EPFO etc government organizations in accordance with their mandates.
Below tables indicate the key parameters of the Company:
a) Cash Flow Summary (Rs. In Millions)
|Particulars||For the period ended 31.03.2020||For the period ended 31.03.2019||For the period ended 31.03.2018|
|Profit / (Loss) before extraordinary items and tax||3454.46||4912.46||5454.29|
|Net Cash flow from Operating activities||1947.18||1227.11||2685.59|
|Net Cash flow from Investing activities||(1058.62)||(257.84)||(1537.85)|
|Net Cash Flow from financing activities||(937.84)||(1229.39)||(746.46)|
b) Summary of EPS for the past 3 years
|For the period ended||Basic EPS||Diluted EPS|
|March 31, 2018||21.53||21.53|
|March 31, 2019||27.83||27.83|
|March 31, 2020||28.73||28.73|
8. Strong Infrastructure and network of the Company favoring the fortune: As of June 30, 2020, the Company had a widespread network which includes 163 UTI Financial Centres, 257 Business Development Associates and CAs (40 of whom operate OPAs), and 43 other OPAs (authorized points of service at which scheme investors can conduct transactions relating to their investments).
Key Risks Factors should be considered before investing:
1. Decline in the Mutual Fund Industry: The main business of the Company is to manage the various mutual fund schemes and charge management fees for the same, a decline in equity valuation, the sudden rise in interest rates, redemptions/withdrawal of funds from mutual funds by the investors may result lowering the size of AAUM which will reduce the revenues of the Company.
2. Low Saving Rate in the Country: The world is going through from COVID-19 pandemic, resulting from the downsizing of economies worldwide and job losses/decline in the earnings of the Individuals. Individuals are having lower income which may further reduce the saving rate at the macro and the micro-level, leading adverse effects on the mutual funds industry and lowering the income of the Company.
3. Change in SEBI regulations: SEBI the market regulator is keeping an eye on the expense ratio charged by AMCs in various schemes and issuing the guidelines for controlling the expenses charged by the AMCs to their investors. In the past SEBI had reduced the overall ceiling of expense ratio to be charged by the AMCs to their investors significantly, which is a welcome step for the investors of mutual funds, however, further reduction in the overall ceiling of expense ratio without a significant rise in AUM size may be adverse for the entire industry.
4. Loss of market share: The Company had a monopoly in the business of assets management for almost 3 decades, however, with the amendment of SEBI regulations and allowance of private players in the assets management business (MF business), the Company started losing it’s market share to the private AMCs, it is having poor growth as compared to the private players i.e HDFC, Nippon, Kotak, ICICI etc.
5. Failure of few debt schemes/write off in debt schemes in the recent time: The company manages a large amount of debt portfolio, in the recent time investment strategy of the Company in the debt instruments had not been so good and the Company invested huge amounts in the debt instruments of turbulent companies i.e DHFL, Zee Entertainment, ILFS, Vodafone etc resulting from the write off of the amount of investment by the Company under various schemes which eroded the NAV of such schemes significantly and investors of those schemes had to bear the losses. As per the prospects of the Company, it had nominal exposure of ₹44.9 billion as on June, 30, 2020 in the defaulted companies out of which the Company had already written off Rs. 38.4 billion worth of investments. If such incidences happen in the future as well it may damp the brand of the Company resulting in the loss of business for the Company.
6. Market Risk: The Company has launched it’s IPO at a time where the fundamentals are near zero, economies are witnessing a de-growth in their GDP, but the market has seen a sharp rise arising out of the liquidity pumped by the Central Banks of the countries globally. Any bad news may lead to a sharp correction in the markets which is going to affect the stock as well.
Concluding Remarks: The Company is the oldest AMC in India having largest presence in B 30 cities, No. 2 AMC in management of NPS portfolio, managing 55% share of EPFO corpus which differentiates it from other AMCs. However, the outcome of pending litigations and loss of market share may adversely affect the business and valuation of the Company.
Disclaimer: All the information have been compiled from red herring prospectus of the Company, AMFI data, and other public reports, the authenticity of the content lies on the authenticity of the information processed. No information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any manner whatsoever, it may be. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk.