UTI AMC IPO: Review and Details

26 Sep 2020  Read 924 Views

Don't you just love the festive season? The time right before Diwali and Dussehra when the market is booming with new brands and fresh products, with amazing offers across all industries. Buyback, cashback, flat 50%, buy 1 get 1 and what not, on so many items ranging from clothing, electronics, gold, to even food! Everything seems new and exciting, and you feel like taking them all home.

Now, even though the festive season this year seems far and is expected to be a bit dull this year due to the pandemic, it seems like the Indian share market has decided to celebrate its own festive season! Day after day, some or the other company is opening up to the public with offers for sales, and initial public offerings (IPOs).

The latest one to join the exciting thread of market announcements is the UTI AMC. The UTI AMC IPO is all set to give an entry into the market and give a break to the long wait of the market. 

While the investors are keen on getting the IPO allotment, why don't we quickly run through the major pointers and brush-up some facts.

A Quick Look into UTI AMC & its Structure

UTI AMC was incorporated in 2002. It is the second-largest asset management company in the country in terms of AUM (assets under management) and the 8th largest asset management company in terms of the mutual fund QAAUM (Quarterly Average Assets Under Management) which approximately amounts to 1,542.3 billion. 

The company has been in business for more than 55 years and thus has a major brand name which is backed by an enormous trust. It currently has about 12.8% of the client base of the entire mutual fund industry. 

Now that we know what the company is, let's have a look at the much-awaited details of the UTI AMC IPO.

UTI AMC IPO Details

The issue comes in the form of an offer for sale with the major stakeholders divesting their holdings. The investors can subscribe for the share at any time starting from September 29 to October 1. The bidding for the anchor book will be held on September 28, and the allotment list will be released on October 7. 

The price band is fixed at 552-554 per equity stock. The stocks will be listed both on NSE and BSE on October 12. The face value of the stock is Rs.10. Investors can subscribe for a minimum of 27 equity shares and in multiples of 27 thereafter. The maximum number of shares one can subscribe for has been limited to 13 such lots.

The book built issue is aimed to raise 2152 to 2160 crore. As part of the process SBI, BoB and LIC will divest roughly 8.25% of their holdings. T Rowe Price International and PNB will shed 3% each of their holdings. 

Kotak Mahindra Capital Company Ltd, Axis Capital Ltd, CitiGroup Markets India Pvt Ltd, DSP, Merril Lynch Ltd, ICICI Securities Ltd, JM Financial Ltd and SBI Capital Markets Ltd will be assisting the IPO as the book running lead managers to the offer. KFintech Pvt Ltd is the registrar for the UTI AMC IPO.

IPO Date

Sep 29, 2020 - Oct 1, 2020

Face Value

₹10 per equity share

Issue Type

Book Built Issue IPO

IPO Price

₹552 to ₹554 per equity share

Issue Size

38,987,081 Eq Shares of ₹10

(aggregating up to ₹3,000.00Cr)

Market Lot

27 Shares

Min Order Quantity

27 Shares

Listing At

BSE, NSE

UTI AMC IPO Lot Size and Price

Application

Lots

Shares

Amount (Cut-off)

Minimum

1

27

₹14,958

Maximum

13

351

₹194,454

How does UTI AMC make money?

Each one of you will invest your hard-earned money into some sort of mutual fund of your choice. The AMC or the asset management company manages all the money thus incurred and takes an important decision as to where to invest it and how to proceed further. 

In turn for the service rendered, these AMC's will receive a specified fee or commission. And, hence, this commission is their major source of revenue. 

To add on, the company charges 0.01% to 2% as its management fee. And this fee accounts for roughly 72.7% of the total revenue. Most of this comes from the B30 (beyond 30 cities) 

UTI AMC also offers various other services to institutional investors, NRIs, trusts, banks, employee provident fund institutions, high net worth individuals, etc.

A list of some of its other services include:

  • Portfolio Management Services.
  • Retirement Solutions.
  • International Business-Oriented Services.
  • Venture Funds and Alternative Investment Assets.

As of September 2019, the UTI AMC manages roughly 178 domestic mutual fund schemes. Further, the company does not have any specified single promoter. 

Some of the major stakeholders include Life Insurance Corporation, Bank of Baroda, Punjab National bank and State Bank of India, which together hold 18.24% of the stake in the company. T Rowe Price International holds 26% of the stake in the company. 

Financials of UTI AMC

What can better portray the health of a company than the company's financial numbers? 

The table offers a bird's eye view of the company's balance sheet

Particulars 

March 20 (in millions) 

March 19 (in millions)

March 18 (in millions) 

Total assets 

31,549.18

30,132.63

29,192.52

Total revenue 

8,909.61

10,808.94

11,627.47

PAT ( profit after tax) 

2,764.85

3,479.27

4,050.91

In the last three years, the company has been showing a declining growth rate when compared to its peers. However, considering the long-run performance, the company saw a CAGR growth of 15.51% from FY2008 to FY2019.

Industry Outlook and Peers

As investors, you might be wondering whether or not to invest in UTI AMC. Let's get that answered by looking at the industry and the company's peers as a whole. 

The seas look rough for Mutual funds companies owing to the impact caused by the COVID-19 pandemic. The previous quarter saw a declining SIP (Systematic Investment Plan), and they were exposed to high redemption pressure as well.

Also, the high volatility of the market has caused a huge impact on these companies. While the pandemic has hurt the industry badly, it will be short-lived as the industry is showing signs of revival. 

In the long run, the mutual fund industry at large has enormous growth potential. From 2014 to 2019 the industry saw a compounded annual growth of 28%. This is majorly caused due to the change in the mindset of the people. 

Around 20 years ago, people would have considered asset classes like bank accounts, physical gold or real estate as their saving options. But things are changing fast as people are looking for alternatives. 

Hence, increased awareness, an increase in the working population, and the changes brought forward in the tax regime will all augment the growth of this sector. 

Now it is time we find out a few factors as to how the UTI's listed peers are performing. Scan through the table to find some quick facts pertaining to them,

Company name

Market cap (in crores) 

PE RATIO 

AUM (Asset under management in crores) 

Share price 

Market Cap to AUM

HDFC AMC

45,621

45.9

3,80,372

2143

11.99%

RELIANCE NIPPON 

17,314

42.2

2,00,867

282

8.61%

UTI AMC

6517

 

1,55,654

554

4.18%

Further, individual investment increased by 6.17% from August 2019 to August 2020. In short, the future seems bright and filled with opportunities. 

So, Is the UTI AMC IPO worth investing in?

UTI AMC has a very strong brand name which is a huge advantage. It has a huge and widely spread network with 163 centres, 273 business development associates and chief agents, 33 other official points of acceptance and 50,000+ independent financial advisors. 

The underpenetrated industry has a lot of growth and opportunities yet to be explored. UTI's long track record and experienced management will act in its favour.

The Indian asset management industry continues to be significantly under-penetrated compared to other nations and other financial services in India. Mutual funds' share in the country's financial savings is still only about 6%, which clearly shows that the industry has a long way to go.

Having looked at its strengths, let's have a quick peek through its weaknesses as well. As such, the mutual fund industry is highly competitive. Further, those AMC's which are backed by banks have the edge over UTI AMC owing to the strong distribution channels they have. 

Moreover, the former has highly penetrated into various regions, and the fact that a bank backs it seems to inspire confidence. In the case of UTI, which operates as an individual firm, it might be difficult to set up units in each and every place where distribution takes place. 

AMC's can increase their profits either by boosting the AUM or by raising the fees. But the TER (Total Expense Ratio) limit which has been recently brought forward by SEBI will put a hurdle on rising profits by increasing the fees. This will cause them to bear a cut on the fee of the distributors as well which in the long run might affect the AMC's adversely as they are largely dependent upon distributors, particularly the ones like UTI. 

UTI AMC is an old company which, unlike its large number of very strong peers, does not spend a lot of money on its marketing and promotion activities. Hence, the chances of it being chosen among its peers look tough. You can Refer to Youtube Video.

To Sum Up

Though the coronavirus was like a big storm, it surely did bring a handful of good opportunities. And missing them would be grave. Hoping that you have already set your mind, there is only one thing to be done. That is to act. So do it quickly and right now.  

About the Author: Varishika Dinesh | 71 Post(s)

Varishika is on the verge of successfully completing B.Com. Nothing excites her more than reading books and watching movies. Business, finance, economy? You have her attention.

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