IPO Review - UTI Asset Management Company - ICICI Securities

UTI AMC, a predecessor of Unit Trust of India, is the second largest asset management company (AMC) in terms of total AUM and eighth largest AMC in terms of mutual fund quarterly average AUM (QAAUM) as on June 30, 2020. As on June 2020, total QAAUM for domestic mutual funds was at Rs. 1,33,630 crore while other AUM was at Rs. 8,49,390 crore.

UTI AMC manages mutual funds of UTI Mutual Fund and provides portfolio management services to institutional clients and HNIs. Furthermore, it also manages retirement funds, offshore funds and alternative investment funds. The company has been active in the AMC industry for over 55 years with its sponsors including State Bank of India, Life Insurance Corporation of India, Punjab National Bank, Bank of Baroda and T Rowe Price.

UTI AMC provides discretionary PMS to Employees Provident Fund Organization (EPFO), Postal Life Insurance (PLI), National Skill Development Fund (NSDF) and advisory PMS to various offshore and domestic accounts. As on June 30, 2020, AUM for PMS business was at Rs. 6,97,050 crore.

Investment Rationale

Strong brand, comprehensive distribution network

UTI's brand is recognised nationwide for its strength and more than 55 years of heritage as a leading and pioneering, participant in the mutual fund industry. UTI has a comprehensive multi-channel distribution network with both in-house capabilities and external distribution channels. The company's distribution channel comprises ~53000 IFAs, internal sales teams and distributor's arrangements with domestic, foreign banks and other distributors. As of June 30, 2020, direct distribution, IFAs accounted for ~58.7%, 29.8% of domestic mutual fund QAAUM, respectively.

Stable investment performance, AUM growth

UTI has a long history of delivering consistent and stable returns through cycles, driving AUM growth. Schemes representing ~92.3% of closing AUM invested in UTI's six core equity strategies have outperformed their respective benchmark indices (by an average of 1.3% per annum) for an average return of 9.6% per annum in 10-year period ended June 30, 2020.

Priced at P/AAUM of 5.3% Q1FY21 at upper band

Post issue market capitalisation at the upper band will be Rs. 7000 crore. At Rs. 554, the stock is available at P/AAUM of ~5.3% Q1FY21 AAUM and at ~17.4x P/E at Q1FY21 PAT (annualised basis).

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_UTIAMC_IPOReview.pdf

Source : Equity Bulls

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