Published on 29/09/2020 10:30:00 AM | Source: SPA Securities Ltd

IPO Note - UTI AMC Ltd By SPA Securities

Posted in IPO Reports| #IPO #SPA Securities Ltd

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The second largest AMC in India by Total AUM, the eighth largest AMC in India by mutual fund QAAUM and the largest share of monthly average AUM in B30 cities among the top 10 AMCs in India- well UTI needs no introduction. Income and liquid and money market funds accounted for 42.7% of their total Domestic Mutual Fund QAAUM. PMS business had AUM of INR 6,970.5 billion, 84.9 % of which was attributable to the mandate to manage part of the corpus of the EPFO. As of June 30, 2020, 50.8% of their Domestic Mutual Fund Closing AUM was invested in equity shares, 0.4% was invested in gold and 48.7% was invested in fixed income securities.

Investment Rationale Strong Brand Value

The brand is recognised nationwide for the contributions of more than 55 years of heritage as a leading and pioneering, participant in the mutual fund industry. The UTI brand was also amongst the top five preferred industry brands in the Nielsen Mutual Fund Studies for December 2015 to January 2016 and September 2017. With 10.9 million Live Folios as March 31, 2020, increasing from 10.7 million as of March 31, 2018, the client base accounts for 12.2% of the approximately 89.7 million folios in the MF industry.


National Footprint- B30 focus

The distribution network includes 163 UTI Financial Centres, 257 Business Development Associates and Chief Agents, 40 of whom operate Official Points of Acceptance and 43 other OPAs, most of which are in each case located in B30 cities - managing 153 domestic mutual fund schemes, comprising equity, hybrid, income, liquid and money market funds. Intermediated investments accounted for approximately 78.0% of AUM attributable to B30 cities as of June 30, 2020, as compared to 49.0% of AUM attributable to T30 cities.


The PMS Business- improving ranks

UTI provides Discretionary PMS to the EPFO, the Coal Mines Provident Fund Organisation, the Employees' State Insurance Corporation, the National Skill Development Fund and to HNIs, NonDiscretionary PMS to Postal Life Insurance and Advisory PMS to various offshore and domestic accounts. UTI is approved to manage 55.0% of the total corpus of the Central Board of Trustees, EPF, accounting for INR 5,916.6 billion, or 84.9% of the PMS AUM. The AUM for PMS business increased from INR 1,158.5 billion as of March 31, 2018 to INR 6,890.6 billion as of March 31, 2020 driven by the above, representing a CAGR of 143.9% and to INR 6,970.5 billion as of June 30, 2020.


Established position in retirement solutions

UTI is one of the three asset managers originally appointed by the PFRDA in September 2007 to manage the pension funds for Central and State Government employees (hired since January 2004 and excluding the armed forces) under the NPS. They set up a subsidiary on December 14, 2007, UTI RSL, to manage such pension funds. On March 13, 2009, UTI RSL was also appointed to manage NPS contributions from citizens other than government employees who joined the NPS on a voluntary basis. As of June 30, 2020, UTI RSL manages 12 schemes, two of which are Government-sector schemes, with an aggregate closing AUM of INR 1,293.1 billion as of June 30, 2020.


Outlook and Valuation

We believe that the MF business- due to SIP's and PF and retirement solutions business are more or less annuity based - thereby providing stability to inflows or AUM accretion unless the AMC fails to renew some of the major client's business and/or acquire new business. At the IPO price the of INR 554 the p/e workouts to ~26x on FY20 earnings, which seems adept seeing the slow to negligible ramp-up in the profitable MF business, which the other AMC's have been able to capitalise on. Considering the scope of opportunity in B30 cities and within T30, beyond the state of Maharashtra the scope of the opportunity seems humungous, further the scaling up of the PMS and retirement solution business could also boost earnings going forward. With the worst behind them as the management learns from its recent hiccups and past experiences, we recommend to subscribe to the issue as a good long-term investment.


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