Aditya Birla Sun Life AMC Ltd IPO - Should you apply or not?

A stellar year for the markets! The year gave dream runs to most of the stocks and mutual funds. Although this was entirely the result of the bull run, fund managers stole the thunder! Either way, the mutual fund sector was gaining traction at an increasing pace.

In the past six months, more than 1 Cr. new SIP accounts were registered with AMCs (or Fund Houses, as you might call it), while SIP contribution doubled to Rs. 96,080 Cr. in just four years! No doubt, the gaining popularity of SIPs was imminent, and so was the growth of AMCs.

At such a time, while the sector was hot, Aditya Birla Sun Life AMC Ltd struck the rod with its IPO. Right place at the right time! Hat’s off to strategizing! This IPO is slated to open for subscription on the 29th of September. Are you confused about whether to apply for this IPO or not?

Well, this blog will feed you with the essentials before you jump into the race of getting the allotment of this AMC industry’s giant.

AMC Industry Overview

The mutual fund industry witnessed outstanding growth in the past five years and even further after the pandemic. Seems like AMCs are floating in the river of new-age investors' money.

Don’t believe it? Numbers clearly prove the AMC industry's growth, as it has grown at a massive CAGR of 14% in the previous decade and achieved a market capitalization of Rs. 30 lacs crore. Oolala!

India's AMC industry has already penetrated tier-1 cities significantly. However, the ocean of tier-2, tier-3 cities & villages is still left to be taken. Moreover, as per CRISIL reports, market capitalisation is predicted to be doubled by 2026! This indicates the future scope of this industry and the potential returns that investors can expect from the giants of this industry. (It’s all goody-good!)

If that turns out to be the case, then this IPO could be a chance for you to add a big AMC player to your portfolio. But, before reaching any conclusion, let's know more about the company and its attributes.

Aditya Birla Sun Life AMC - An Overview

Aditya Birla Capital and Sun Life AMC joined hands in 1994 with the vision of becoming India's leading asset management company. Since then, this company's AUM amount has touched a whopping 2.95 lacs crore as per the reports of June 2021.

If we talk about Aditya Birla Sun Life AMC's offerings, it includes a wide range of mutual funds, PMS, offshore funds, and alternative investments. Currently, they are offering 118 mutual fund schemes consisting of 37 equity schemes, 68 debt schemes, two liquid schemes, six domestic funds of funds, and 5 ETFs.

The company has established its multi-channelled geographical presence in PAN India, covering around 280 locations across 27 states and six union territories. Amazingly, the network is extended with about 65,000 Know Your Distributors (KYDs), over 245 national distributors, and approximately 100 banks/financial intermediaries as of June 2021.

The above figures are enough to justify that Aditya Birla Sun Life AMC is well established and offers a wide range of financial services but does it ensure its growth in the future? Well, make of it what you will ;-)

We know you’ve been waiting to see whether you should apply for this IPO or not, but before we dive into the factors that favor this IPO and the risk factors it carries, let's have a glance at the company's financials. Because that determines it all!

Competitive Analysis of Aditya Birla Sun Life AMC

Here's a comparison of a few attributes of Aditya Birla AMC with its peers:

Details of the IPO

The IPO will remain live for subscription from Sept 29 to Oct 01, 2021. The shares will list in the stock exchanges, most probably, on 11th October  2021.

Application Range Details

Factors that favour the IPO

Following are the factors that might entice you to invest in the IPO:

• Backed by a strong promoter group

One thing which has not changed in the country over decades is the popularity of some of the business groups among Indian consumers. One such familiar name is the ‘Birlas,’ a 150-year-old, almost $50 billion conglomerate!

This established brand equity and backing from Birlas acts as a seal of approval to the mutual fund investors. This is the reason why, even without having its own bank channel, the company demonstrated good growth and has successfully acquired a remarkable market share of  ~ 8.5% in terms of AUM.

• Good SIP AUM portion

The AMC enjoys a leading position when it comes to individual AUM, a lucrative segment considering the under-penetration. Aditya Birla is the 5th largest AMC in terms of total individual AUM market share. In terms of incremental growth in the individual investor AUM mix, the company has secured 2nd position as per a June 2021 report. 

Moreover, with its aggressive distribution and quality digital platforms, the company has shown good growth in terms of SIP share. Despite being a high acquisition cost medium, the SIP investment route is always praised by AMCs as it brings more long-term, sticky capital. 

Due to the small ticket size nature, the SIP AUM is quite consistent and less exposed to the redemption risk during the off-market period. Stability 101. Out of the total AUM base, ABSL’s SIP AUM consists of 33.99% share, while in the Equity segment AUM, the SIP AUM has a share of 41.7%. 

• Focus on B-30 cities

One more positive aspect that could drive the company’s growth is its strong presence in B-30 cities. As per CRISIL, a significant portion of the industry growth would come from the B-30 cities, as tier-1 cities have already been tapped.  Established AMCs with a wide distribution reach like ABSL are well poised to attract customers in these locations.

Risk factors in the IPO

Following are the factors that you must consider before investing in the IPO:

• High dependence on inorganic channels

The time has changed when financial products used to be an unsought category and companies had to appoint a vast distribution network of agents to sell their products, be it insurance or mutual funds. 

In present times, the rise in internet consumption and growing financial literacy have created umpteen DIY investors whose decisions are not driven by agents but by research (whether self-made or advisor-assisted). This changing behaviour has created a threat for the traditional AMCs, who are heavily dependent on third-party channels for expanding their clientele. 

If you analyze Aditya Birla, you will see that around 30% of its AUM is acquired through Mutual fund distributors, and about 9% is done through bank and financial intermediaries. The loss of any distribution network or the inability to access investors through third-party distribution channels could significantly affect the company’s AUM.

• Rising popularity of Passive instruments

Due to policy constraints and price caps, AMC players do not enjoy much pricing power, which has already created cut-throat competition in the industry. In this competitive environment, the only factor which has supported a company’s profitability is its Active Equity AUM share.

Owing to this, Old AMCs like HDFC & Aditya Birla with reasonably high active AUM have enjoyed a stable profit trend. But over the last few years, both the global and domestic mutual fund investments have seen a robust shift from active to passive schemes. As per CRISIL, this trend is expected to continue as generating alpha in this market has really been difficult (or simply, beating the markets is not that easy anymore).

What has further intensified the competitive scenario is that established fintech players with much cheaper management charges are planning to tap the segment. In short, we can say that the company’s economic moat, i.e., the equity AUM base, may erode with time if it fails to beat the index.

The Bottom Line

If reports are to be believed, only a meager 2-3% of Indians invest in equities! Although this is disappointing, there’s a silver lining. A vast untapped market for the taking!  So, the scope of growth for the broking and the mutual fund industry is beyond imagination! But then, the vital question is, will Aditya Birla Sun Life AMC get to be a part of this ride?

Yes. No. Umm, maybe! The fund house is backed by a strong brand name, which is a great plus point. Add to it, the company’s focus on the increasingly sought-after SIPs and untapped markets are like a cherry on the top.

However, the company is still dependent on inorganic channels of customer acquisition (around 40%) which could make it lose the markets to new entrants getting popular by word-of-mouth. The market’s shift towards passive instruments could also pose a threat to the company. The pointer seems to be more inclined towards the plus side, though.

Anyway, now that you have all sides of the topic discussed in this blog, it’s upto you to make the call. 

So, what’s it gonna be? Yay or Nay? Tell us in the comments below!