Strong markets, a rapid recovery from the second wave of the covid-19 pandemic and the accumulation of large savings by Indian households have been a boon to the mutual fund industry. Would Indian households and institutions venture further and place their savings in the equity of a fund house in addition to its funds?
Aditya Birla Sun Life (ABSL) Asset Management Company Ltd would be the fourth fund company to be listed, and judging by the reception its peers have received, the mutual fund will not have a hard time getting a response. strong.
The fund company’s conscientious approach to growth can earn points with potential investors.
The initial public offering (IPO) by which the fund company aims to raise approximately ??2,700 crore will open on September 29 in a price range of ??695-712 per share. At the upper end of the range, the company would be valued at ??20,505 crores. What will investors get with this valuation?
Mutual funds are conduits or intermediaries that help individuals and institutions invest in the debt and equity markets. Fund houses therefore earn money through fees, commissions and other charges. So, building ladder is one of the most important ways to increase income.
In this, the ABSL fund house has so far been a winner. With assets under management (AUM) of ??$ 2.94 trillion, ABSL AMC is the country’s fourth largest fund house. Its growth over the past four years, despite the pandemic, has been 18% on a compound annual growth rate (CAGR) basis. The predominance of fixed income products in the overall assets under management also helped.
“Our approach is one of scale to profit. Our revenue growth would also be good for the future, ”said A. Balasubramanian, Managing Director and CEO of ABSL AMC. “Fixed income always generates more income because it generates high volume,” he said.
On an average quarterly basis, the growth in assets under management was 9% in fiscal 21 for the company. This compares to a 19% growth of HDFC Asset Management Co. Ltd and 12% of Nippon Life India Asset Management Ltd. That said, growth has been driven by systematic investment plan (SIP) flows, which provide stability.
Another factor that helps ABSL AMC is the growth of the assets under management of the equity fund. The fund house posted the second highest growth rate in the equity mix of its assets under management among its industry peers. Equity assets under management now represent 38.1% of total assets under management on an average monthly basis.
Scale reinforced measures of profitability. Net income as a percentage of average assets under management increased by 2 basis points for FY21 to 45 basis points. A basis point is one hundredth of a percentage point.
There are, however, some factors investors should focus on. In absolute value, operating revenue is down 18% over two years.
As the scale increases revenue, it also helps control cost ratios. The fund company’s cost-to-income ratio fell sharply to 46.69% in FY21, but compares poorly with peers such as Nippon AMC with lower ratios.
In addition, ABSL AMC has lost market share in recent years. The loss of market share affected the large players, as the smaller fund houses were able to increase their share. The fund company will generate growth, but market share could be volatile, Balasubramanian said.
“There are some interesting new players to come. The existing small players increase their stake. It will not be easy to maintain the scale, ”said an analyst who requested anonymity. The valuation leaves room for a good pop quote and the gray market premium indicates the same, analysts say.
The result is that the fund house has given investors enough reason to take a close look at its offering. However, when it comes to the mutual fund disclaimer, past performance is no guarantee of future growth.
ABSL AMC must keep its promises of growth, otherwise investors may view valuation as too heavy an entry charge.
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