UTI AMC: Should You Subscribe To The IPO?

There are as many as three Initial Public Offerings from companies this week. This include the IPOs of Mazagon Dock Shipbuilders, Likhitha Infrastructure and UTI Asset Management Company.

While several broking firms have recommended the stock or Mazagon Dock Shipbuilders, many broking firms are also recommending the IPO of UTI Asset Management Company.

Should you subscribe to the IPO of UTI AMC?

Asset management companies generally manage mutual fund schemes and similar is the case of UTI Asset Management company, which manages the UTI mutual fund schemes. Apart from this it also provides Portfolio Management Services (PMS) to institutional clients and high networth individuals (HNIs) and manages retirement funds like National Pension Scheme (NPS).

According to broking firm Geojit, the IPO price justifies competition pressure.

"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," the broking firm has stated.

As of June 2020, UTI had the largest share of monthly average AUM attributable to B30 cities by QAAUM, according to CRISIL. The company enjoys 2nd highest market share in PMS and NPS business with AUM of Rs.6,970.5bn and Rs.1,356bn, respectively.

According to broking firm Geojit, the 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 uncertainities from pandemic. Accordingly, we recommend Subscribe rating on a short to medium-term basis, expecting listing gain," the broking firm has stated.