L&T Finance may sell stake in MF business

Firm begins evaluation process, might exit from MF biz

Four years after acquiring Fidelity Mutual Fund in March 2012, L&T Finance Holdings is considering selling stake to a foreign partner. The non-banking finance company of engineering behemoth Larsen & Toubro (L&T), which operates the country's 14th biggest asset management company (AMC), with asset size of nearly Rs 26,000 crore, is also not averse to exiting the business altogether.

"For the MF business, we may look at a minority foreign partner, who can bring in funds into the business and add value to our growth strategy," said a spokesperson of L&T Finance.

Questioned specifically on exiting the MF space, the spokesperson said, "We would not like to comment on rumours or speculation."

L&T MUTUAL FUND

• Jan 2010: Forayed in mutual fund business by acquiring DBS Chola
• Mar 2012: Acquired Fidelity’s Indian mutual fund business
• Post-Fidelity deal: Total combined asset at Rs 13,497 crore; L&T MF emerged as 13th-largest fund house
• Mar 2016: With current AUM of Rs 25,945 crore, L&T MF slips to 14th position, in terms of size

According to sources familiar with the developments, L&T Finance has begun the evaluation process and is eyeing valuations between Rs 1,000 crore and Rs 1,300 crore. This would value the fund house at four to five per cent of its asset size, in line with some of the recent acquisitions in domestic AMC space.

The move is part of L&T Finance's ongoing restructuring process, aimed at improving return on equity (RoE) and focusing on core areas such as rural, housing and wholesale lending.

In a recent earnings conference, L&T Finance's Deputy Managing Director Dinanath Dubhashi had highlighted the company's strategy to improve RoE.

"The paring of investment is part of a strategy to improve the use of resources, enhance the RoE and profitability. The RoE has been 10-11 per cent for four years; the aim is to move this to 17-18 per cent over three to four years," he had said.

Sources said L&T Finance pruned its employees by over 500 in the last two months and might trim further as part of the ongoing restructuring exercise.

Although the AMC business isn't capital-intensive, it generates wafer-thin margins. "Since the company is eyeing high RoE, the AMC business doesn't gel well with that plan," said a source.

In 2015-16, L&T Mutual Fund had clocked a net profit of Rs 19 crore, up over 3.5 times over the previous year. The overall net profit for L&T Finance's consolidated business stood at Rs 850 crore for 2015-16.

L&T Mutual Fund had hit headlines by acquiring Fidelity Mutual Fund in March 2012, which was nearly twice its asset size. Fidelity, which had an asset size of Rs 8,881 crore at the time of acquisition, was bought at Rs 580 crore, around 6.5 per cent of the asset size.

L&T had forayed in the mutual fund space in January 2010 by acquiring DBS Chola Mutual Fund.

Interestingly, at the time of acquiring Fidelity, Chairman & Managing Director Y M Deosthalee had said, "Size is very important in this business. Over the next few years, we want to be among the top five players in the Indian mutual industry."

Fund houses faced a challenging time between 2012 and 2014, due to regulatory changes and high redemption pressure from investors because of weakness in the stock markets. The hostile conditions saw several players exiting the MF space. Since mid-2014, mutual funds have witnessed encouraging growth, as investors have flocked to equity mutual funds, amid a sharp rally in the market.

Of L&T MF's total asset size of nearly Rs 26,000, 40 per cent or Rs 10,378 crore are equity assets; the balance is debt.