UTI Asset Management Company Limited - IPO Note - Geojit

IPO price justifies competition pressure...

UTI Asset Management Company Ltd (UTI) is a professionally managed company catering to diverse group of individuals and institutional investors, banks, trusts and NRIs through a wide variety of fund management services. The company manages the domestic mutual funds of UTI mutual fund, provide Portfolio Management Services (PMS) to institutional clients and high networth individuals (HNIs) and manages retirement funds like National Pension Scheme (NPS). The AMC also manages offshore funds and alternative investment funds.

- UTI AMC and its predecessor (Unit Trust of India) have been active in the asset management industry for more than 55 years, having established the first mutual fund in India.

- UTI is the 2nd largest AMC in India with Total AUM of Rs.9,706bn and 8th largest AMC in India in terms of mutual fund business with Quarterly Average AUM (QAAUM) of Rs.1,336bn.

- As of June 2020, UTI had the largest share of monthly average AUM attributable to B30 cities by QAAUM, according to CRISIL.

- Company enjoys 2nd highest market share in PMS and NPS business with AUM of Rs.6,970.5bn and Rs.1,356bn, respectively.

- UTI has strong distribution network with presence in 697 of 722 districts in India.

- Mutual fund business has been showing decline in market share over the past few years, from 8.2% in FY14 to 5.4% in Q1FY21.

- Company's FY20 ROE stands at 10.3% which is much lower than its peers (HDFC AMC-35.5% and Nippon Life-16.2%). However, at the upper price band of Rs.554, UTI AMC is available at P/E of 25x FY20, which is cheaper compared to its peers (HDFC AMC-36x, Nippon Life - 38x). Based on the upper price band, the Market cap to MF AUM for UTI stands at 5.3% compared to HDFC AMC-12.6% and Nippon Life- 8.6%. Additionally, they have huge business of PMS & NPS, which accounted for 41% of Q1FY21 revenue. We believe that the IPO price is after factoring lower ROE, high competition and uncertainties from pandemic. Accordingly, we recommend Subscribe rating on a short to medium-term basis, expecting listing gain.

Source : Equity Bulls

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