fund

Aditya Birla Sun Life AMC clears IPO test


Aditya Birla Sun Life AMC, the country’s fourth-largest asset management company (AMC) by assets under management (AUM), plans to raise up to ₹2,768.3 crore through an offer for sale by the two promoters, Aditya Birla Capital and Sun Life AMC. After the sale, the promoter stake will fall to 86.5%. Investors may consider the issue given its wide distribution network, rising retail franchise, better return on equity, and reasonable valuation.

Business

The company had a market share of 8.3% in the country’s mutual fund industry as of June 2021 with an AUM of ₹2.9 lakh crore. It has over 66,000 distributors covering more than 280 locations with a presence in tier-II and tier-III cities. Its total folio count (accounts) at the end of June 2021 was 7.2 million. The folio growth between March 2016 and March 2021 was 19% annually compared with the 15% growth in the total folio count of the industry. It has a strong retail franchise. The proportion of the systematic investment plan (SIP) increased to 41.7% of its total equity assets in June 2021 from 25.7% in March 2016.

The mutual fund space is highly regulated and there is intense competition among the top five AMCs. Most of the top companies are affiliated with banks, which gives them access to the banking network. While the presence of banks helps AMCs secure new business, Aditya Birla Sun Life AMC has created a space for itself over 25 years without the support of a bank.

In the past few years, mutual funds have emerged as a strong investment option due to the low returns from fixed deposits. This bodes well for Aditya Birla Sun Life.

Financials

The company’s revenue fell to ₹1,191 crore in FY21 from ₹₹1,407 crore in FY19. However, net profit grew by ₹526 crore from ₹446 crore during the period due to lower expenses. The company’s return on net worth was superior at 30.9% in FY21 compared with 15-28% for the listed peers.

Valuation

Based on FY21 earnings, the company’s price-earnings multiple works out to be 38 compared with 39-51 for peers including HDFC AMC, UTI AMC, and Nippon Life India Asset Management. Given the reasonable valuation, stellar growth in the past, and increasing popularity of mutual fund investment, long-term investors may consider the IPO.



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