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L&T Finance buys out Fidelity's India MF arm

BS Reporter  |  Mumbai 

Setting aside the widespread speculation that a foreign player would buy out Fidelity’s India business, L&T Finance, a domestic player, on Tuesday inked the deal for an undisclosed amount. Company officials indicated the deal value would around Rs 550-600 crore.

This turns out to be 6.1-6.9 per cent of Fidelity’s average asset under management (AUM) of Rs 8,881 crore as of December 2011. About 68 per cent of its assets are equity-oriented.

Following the buyout, with a combined assets of Rs 13,497 crore, L&T Finance, a unit of L&T Holdings, becomes the 13th-largest fund house in the country’s highly-competitive asset management space. Given that L&T made its foray into the mutual fund business two years before, in January 2010, by acquiring the fund business of DBS Chola, its rise has been one of the fastest among new players.

“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,” said Y M Deosthalee, chairman & managing director, L&T Holdings. 

* Fidelity AMC controls 1.3% of the market share in Indian fund industry
* As on December 31, 2011, Fidelity had an average asset under management of Rs 8,881 crore, of which around 68% of the assets were equity-oriented
* As on December 31, the asset size of the combined entity was Rs 14,000 crore 
* Transaction likely to be finalised in the next two-three months
* The entire Fidelity team will remain till the integration process is on

As on December 31, L&T Mutual Fund’s average AUM stood at Rs 4,616 crore, most of which were debt-focused.

“It’s a good fit for our business. We have more debt assets and they (Fidelity) have larger equity assets,” said Deosthalee. “Another important point is that L&T AMC is largely dependent on individual financial advisors (IFAs) for its distribution, and, Fidelity would complement with its other distribution channels,” he added.

Since the transaction will be finalised in the next 2-3 months, Deosthalee did not disclose the valuations, but said it was close to some recently concluded deals in the fund management space. Recently, Japan-based Nippon Life had valued Reliance Mutual Fund at 6.6 per cent of its AUM.

L&T will buy FIL Fund Management and FIL Trustee Company, which carry out Fidelity’s mutual fund business in India. The agreement signed is subject to regulatory approval.

When asked about whether Fidelity’s team will be retained, Deosthalee said there was a detailed integration plan and all the 120 employees of the acquired entity would remain till the integration process is on. But he indicated that large part of Fidelity’s team may not be there later. What I can say as of now is: “Fidelity has an excellent team.”

“Ashu Suyash (Fidelity International managing director and country head for India) is going to be an extremely important part during the integration process,” said Deosthalee. L&T AMC officials said they had built up a good team over the past two years.

With a market share of 1.3 per cent, Fidelity Asset Management Company (AMC), set up in 2004, manages the fifteenth-largest mutual fund in India. Its equity assets are the tenth-largest in the country, with a market share of 3.1 per cent.

The company had put its Indian mutual fund business on the block in January this year — after a sharp fall in the equity markets and regulatory changes like removal of commission charged by mutual fund distributors for selling a product made life difficult for asset managers.

In FY11, it was the second-largest loss-making fund house after Axis Mutual Fund. It booked a loss of Rs 62.39 crore during the year, compared to a loss of Rs 27.56 crore in the previous financial year.

“We see tremendous complementary strength between the two mutual funds. The strong equity focus of Fidelity’s Indian fund business, when combined with L&T Mutual Fund, results in a balanced asset base,” said N Sivaraman, president & whole-time director, L&T Finance Holdings.

As of December 2011, the average AUM of the two entities translates into a market share of about 2 per cent.

Lazard was the financial advisor to L&T Finance in the transaction, while JP Morgan represented Fidelity.

First Published: Wed, March 28 2012. 00:11 IST