Aditya Birla Sun Life AMC - IPO - Healthy Outlook with Improving Operating Efficiency - Reliance Securities

About the Company

Aditya Birla Sun Life AMC (ABAMC), incorporated in 1994, is a joint venture company (JVC) between Aditya Birla Capital (ABCL) and Sun Life AMC. Its total AUM stood at Rs2,936bn under mutual fund (excluding domestic Fund of Funds), portfolio management services, offshore and real estate offerings as of June 30, 2021. ABAMC managed 118 schemes comprising of 37 equity funds, 68 debt funds, 2 liquid schemes and 5 exchange traded funds (ETFs) as of June 30, 2021. The equity funds accounted for >36% of total AUM, which looks decent. Further, the company has automated and digitized several aspects of its operations including customer onboarding, online payments/other transactions, fund management, dealing, accounting, customer service, data analytics, and other functions. According to a CRISIL report, 13 of its top open-ended schemes (which accounted for 64.4% of its quarterly average AUM as of June 30, 2021) have outperformed their peers under 10-year return bucket. Further, ABAMC's gross monthly SIP inflows stood at Rs7.6bn in FY21 as against Rs9.4bn in FY19. Its SIP AUM stood at Rs418bn as of FY21, which formed 43% of equity AUM. Further, ABAMC has seen a consistent improvement in AUM share in B-30 markets over the last three years. Its proportion of B-30 AUM - as a percentage of total AUM - stood at 15.8% as of June 30, 2021, which is the highest among the Top-5 players in terms of increase in B-30 proportion.

Financials in Brief

ABAMC's financial performance has not been impressive over last two years. While the industry's average AUM clocked 14.5% CAGR over FY19-FY21, ABAMC's AUM recorded a mere 3% CAGR during the same period. However, consistent improvement in operating efficiency (opex - as a percentage of AUM - improved from 28bps in FY19 to 17bps in FY21) enabled the company to record 9% earnings CAGR over the same period. Notably, cash flow generation has been impressive for the company with cumulative OCF and FCF of Rs13.2bn and Rs12.8bn, respectively over FY19-FY21.

Our View: SUBSCRIBE

The implied market cap. of IPO is 7.6% of FY21 AUM, which is ~40-55% discount to HDFCAMC and NAM. On PE basis, it is valued at 39x of FY21 earnings, which also looks attractive compared to peers. Notably, though the company's equity AUM exposure at 36% is lower compared to peers, it has been doing exceedingly well in improvising its operating efficiency over the years. Therefore, its RoE of 31% in FY21 is superior to NAM and equivalent to that of HDFCAMC. Further, FCF yield at 2.4% looks good. Further, sustained strong cash flow generation on the backdrop of continued rise in penetration level and improvement in equity AUM is likely to ensure healthy payout, going forward.We recommend SUBSCRIBE to the issue from long-term perspective.

Link to the report

Source : Equity Bulls

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