IDFC to look for suitors again for its Rs 1.26 trillion MF business

Existing fund houses, MF aspirants could show interest

IDFC has once again set the ball rolling for the sale of its mutual fund (MF) business. The company’s board on Friday decided to rope in investment bankers to find suitors for IDFC MF, which manages assets worth Rs 1.26 trillion and is among the country’s top 10 asset management companies.

“The board of directors…approved to initiate steps to divest its mutual fund business subject to requisite regulatory approvals, as applicable. The boards have authorised respective strategy and investment committees to take necessary steps, including appointment of investment banker, for the same,” said the company in a stock exchange filing.

The board’s decision comes within days of a conference call where the shareholders criticised the company for failing to provide definite timelines for its reverse merger with IDFC First Bank and sale of MF business.

IDFC has been looking to sell its MF business for the past 4-5 years. However, disagreement over valuations have thwarted a deal.

Industry sources say this time it could be different given the healthy growth in its assets, boom in the equities market and positive outlook for the Rs 36-trillion MF industry. Several existing players, new entrants to the MF space as well as other players in the financial services industry could show interest, they add.

During the June 2021 quarter, IDFC MF had average assets under management (AUM) of Rs 97,980 crore on the debt side and Rs 28,159 crore on the equity side.

Typically, deals in the MFs take place between 5-7 per cent of the AUM. In many cases, valuations can increase if the fund house has a good amount of equity assets. IDFC MF also has a good profitability track record.

For the financial year 2020-21, IDFC MF had reported net profit of Rs 144 crore, an increase of 81 per cent over Rs 79.4 crore recorded in FY20.

"IDFC MF has an established business with a good mix of debt and equity. However, we need to look at the valuations in which they want to sell their business," said a senior official from the MF industry.

This year there have been several M&As in the MF space. However, in most cases smaller players have got scooped up.

Earlier in May, Nextbillion Technology, that operates leading investment platform Groww acquired Indiabulls MF for Rs 175 crores, which included cash equivalents of Rs 100 crore.

In January, this year Sundaram MF acquired Principal Asset Management. While Sachin Bansal owned Navi MF had bought the assets of Essel MF. Recently, White Oak Capital received regulatory approval for its Yes MF buy.

Industry players say the valuation of IDFC MF could be in excess of Rs 5,000 crore and only players with significant financial muscle will be able to make a bid.

Sharp growth seen in the domestic MF business has attracted several players into the industry. In the last few weeks, players such as Bajaj Finserv and Zerodha have also received the approval to set-up the AMC business. NJ MF, asset management arm of country’s largest MF distributor NJ India and Samco MF, part of discount broking firm Samco, have recently announced launch of new schemes.

In a recent note, Elara Capital projected the industry AUM to grow to Rs 92 billion by 2029-30. This will imply a growth of 12.7 per cent annually between FY21 and FY30.