Should you subscribe to AB Sun Life AMC IPO? Here's what analysts say

The initial public offer (IPO) by Aditya Birla Sun Life AMC (ABAMC), among the fourth-largest asset management companies (AMC) in India, will open for subscription on Wednesday, September 29. The company, which is a joint venture between Aditya Birla Capital and Sun Life AMC, looks to raise Rs 2,768.3 crore through an offer for sale by its two promoters. Hence, the company will not receive any proceeds from the share sale. The IPO is priced at Rs 695-712 per share and investors can bid for a minimum lot of 20 shares and in multiples thereof.

Analysts recommend subscribing to the issue given the company's reasonable valuations, strong return on equity, diverse product portfolio and well recognised promoter group. 

Business Trends

The company has a strong geographical presence and distribution network, comprising 194 branches in over 280 locations with over 66,000 distributors. Further, its asset under management (AUM) stood at Rs 2.9 lakh crore as of June 20, translating to a share of nearly 8.5 per cent of total industry AUM. The equity funds accounted for over 36 per cent of total AUM. AB Sun Life AMC is looking to improve its equity-oriented scheme mix which can enhance its profitability, said analysts. 

That said, the share of SIP AUM increased to 41.7 per cent at the end of June 2021 from 25.7 per cent in March 2016. The figure was also higher than the industry share of 31.36 per cent as of June this fiscal. Further, the company has seen a consistent improvement in AUM share in Tier II and Tier III markets over the last three years. According to ICICI Direct a large part of industry growth is expected to come from these cities and AB Sun Life AMC remains well placed to attract customers. 

Financial Snapshot

The company's financial performance has not been impressive over the last two years. While the industry’s average AUM clocked 14.5 per cent CAGR over FY19-FY21, ABAMC’s AUM recorded a mere 3 per cent CAGR during the same period. However, consistent improvement in operating efficiency enabled the company to record a 9 per cent earnings CAGR over the same period, analysts at Reliance Securities noted. Cash flow generation remained strong, with cumulative OCF and FCF of Rs 1,320 crore and Rs 1,280 crore, respectively over FY19-FY21.

Valuations

The implied market cap of IPO stands at 7.6 per cent of FY21 AUM, which is at a 40-55 per cent discount to peers HDFCAMC and Nippon Asset Management Company. Meanwhile, on a PE basis, it is valued at 39x of FY21 earnings, which also looks attractive compared to peers, analysts noted.

Analyst Take
 

Anand Rathi: Subscribe

Given that the company is the largest non-bank affiliated AMC and among the four largest AMCs in India with well-recognised promoters, growing individual investor customer base, diverse product portfolio with high RoNW (return on net worth) of 30.87 per cent in FY21, we give this IPO a Subscribe rating.

Reliance Securities: Subscribe from long-term view

The company’s equity AUM exposure at 36 per cent is lower compared to peers. But it has been doing exceedingly well in improvising its operating efficiency over the years. Therefore, its RoE of 31 per cent in FY21 is superior to NAM and equivalent to that of HDFC AMC. Further, FCF yield at 2.4 per cent looks good. Sustained strong cash flow generation on the backdrop of continued rise in penetration level and improvement in equity AUM is likely to ensure healthy payout, going forward. We recommend Subscribe to the issue from long-term perspective.

Religare Broking: Positive from long-term view

ABSL AMC stands to benefit from strong industry prospects. It has a well-recognized and experienced promoter group that will support in building customer trust as well as improve SIP inflows. The company has seen a consistent improvement in AUM share and overall performance has been healthy. From the long-term perspective, we have a positive view of the company.

Marwadi Shares and Finance: Subscribe

We assign the Subscribe rating to this IPO as the company is the largest non-bank affiliated asset manager in India with a diverse product portfolio and geographically diversified pan-India distribution presence. Also, the company is available at a reasonable valuation as compared to its peers.