HDFC Mutual Fund’s initial public offer (IPO) has received approval from the Securities and Exchange Board of India (Sebi) at a time when market conditions have turned favourable. However, valuation of the much-awaited IPO is likely to be lower than the widely expected figure of Rs 350 billion.
According to bankers handling the issue, HDFC MF’s IPO would be launched at a valuation of anywhere between Rs 270 billion and Rs 330 billion. According to sources, Sebi has issued its final observations and Registrar of Companies (ROC) approval is awaited. This is mostly a procedural exercise.
At Rs 350 billion, HDFC MF would have been valued at 11 per cent of its total assets under management (AUM) as of March 31, and in terms of P/E it would have been around 49x its trailing-12 month earnings. To be sure, HDFC MF scores better than Reliance MF when it comes to certain key operational ratios.
For instance, HDFC MF’s return on equity as of March 31, 2018, stood at 40 per cent while that of Reliance MF was at 25 per cent. Also, while both these fund houses have a similar topline of around Rs 18 billion, HDFC MF has a higher PAT margin of 39 per cent vs Reliance MF’s PAT margin of 29 per cent.
HDFC MF also has a higher share of equity assets which contribute more to profitability. As of December 2017, HDFC Mutual Fund topped the list of asset managers in terms of share of equity assets. It had 15.4 per cent share in terms of assets of equity-oriented funds (including balanced funds and equity exchange traded funds), as per its draft prospectus.
ICICI Prudential MF had the second largest share with 14.7 per cent and 14.5 per cent based on month-end and quarterly average AUM respectively as on December 2017.