UTI AMC - Review + Recommendation

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UTI Asset Management Company -  AMC / Mutual Fund IPO Review and Recommendation

Nirmal Bang Analysts Raghav Garg and Arjun Bagga said

At the upper price band of Rs 554 / share, the company is being valued at Rs70.2bn. The issue size is Rs21.6bn, which is entirely an offer for sale (OFS). SBI, LIC, PNB, BoB and T. Rowe Price would be selling 39mn shares collectively. At 25.4x FY20 EPS (trailing), we think the IPO pricing is undemanding given the valuation HDFC AMC and Nippon AMC are currently commanding. From a more near-to-medium term perspective, we currently have a cautious view on the overall AMC sector. Even though we are positive on the industry prospects from a long-term perspective, we take cognizance of some of the near-to-medium term headwinds.

ICICI Direct Research Analyst, Kajal Gandhi Wrote

Post issue market capitalisation at the upper band will be Rs 7000 crore. At Rs 554, the stock is available at P/AAUM of ~5.3% Q1FY21 AAUM and at ~17.4x P/E at Q1FY21 PAT (annualised basis).

Emkay Securities analyst Jignesh Shial and Anand Dama said,

At a price band of Rs552-554, UTI AMC has priced its IPO at ~4.6% of total FY20 AUM (~26x P/FY20 earnings) with ~10% FY20 RoE. Peer comons are NAM India which is trading at ~7.4% of FY20 AUM (~37.3x P/FY20 earnings) and HDFC AMC which is trading at ~8.2% of FY20 AUM (~37.5x P/FY20 earnings). Considering relatively weaker return ratios and unfavorable AUM mix, UTI AMC is expected to be at a discount to its peers. Hence, the valuation discount by UTI AMC IPO is justified and remains attractive considering gradual improvement in cost parameters

Canara Bank Securities Research Team said,

UTI AMC IPO at higher price band is attractive as Market cap to AUM percentage stands at 5.26%, which is lowest among listed peers.
HDFC AMC’s and Nippon Life AMC’s Market Cap/AUM percentage stands at 12.57% and 8.54% respectively. In addition, UTI AMC’s PE stands at 25.73x FY20 as com-pared to HDFC AMC’s and Nippon Life AMC’s PE of 35.43x and 37.06x FY20 respectively. Hence, we rec-ommend to Subscribe UTI AMC IPO for listing as well as long term gains.

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Choice Broking Analyst Rajesh Yadav said,

At the higher price band of Rs. 554 per share, UTI AMC is demanding a P/E valuation of 23.3x, which is at a discount to the peer average of 35.1x. Considering the above observations and positive macros of the domestic mutual fund industry, we assign a “Subscribe for Long Term” rating for the issue.

Anand Rathi Research Team Said,

Though the company has underperformed its larger industry peers in recent past, UTI Asset Management Company Limited’s IPO is priced relatively at a discount of about 30% at upper price band compared to its industry peers. Considering the future growth prospects for asset management industry and relative valuations we recommend Subscribe (Long Term) for the IPO.

Research Analyst Karan Desai of Asit C Mehta said,

The company is Well-positioned to capitalise on favorable industry dynamics, including the under-penetration of mutual fund products .At the upper price band of Rs.554/-, the stock trades at 25.7x its FY20 EPS of Rs.21.53/-. We recommend to subscribe the issue from a long-term prospective

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IDBI Capital Analyst Bunty Chawla Said,

At upper price band, IPO is priced at a P/E of 25.7x and P/AUM of 5.3% which is discount to its peers AMC (Nippon India P/E of 37.7x, P/AUM of 6.1% and HDFC AMC with P/E of 35.6x and P/AUM of 14.1%) based on FY20 due to lower return ratio (RoE at 10%). With focus on cost parameters and high dividend payouts (guided 50% vs 32.6% FY20) should result in improvement in RoE and thus valuation difference could decline. We recommend subscribing the issue.

Nirmal Bang Analyst Raghav Garg and Arjun Bagga said,

Even though we are positive on the industry prospects from a long-term perspective, we take cognizance of some of the near-to-medium term headwinds. At the upper price band of Rs554/share, the company is being valued at Rs70.2bn. At 25.4x FY20 EPS
(trailing), we think the IPO pricing is undemanding given the valuation HDFC AMC and Nippon AMC are currently commanding. We shall take a call on the stock rating at a later stage.