UTI AMC’s four public sector shareholders ? SBI, Punjab National Bank, Bank of Baroda and Life Insurance Corporation ? may collectively end up pocketing about R1,000 crore among them if the government decides to offload 25% stake in UTI AMC, the country’s fifth largest asset management company (AMC) in terms of the assets it manages, through an initial public offering (IPO). All these four entities own 18.5% each in the AMC.
An AMC’s valuations can be based on the multiple of its earnings and the mix of assets it has. Typically, retail-oriented assets get a valuation of 6-7% of AUM, while institutional, or debt, assets get a valuation of 2-3% of AUM. In past few years, deals in the MF industry have been valued at anywhere between 4-7% of average AUM.
According to experts, UTI could be valued at 5-6% of average AUM or 7-8 times its revenue. The AMC’s assets stood at R79,440 crore as of quarter ended June 2014, while its revenues for FY13 stood at R493 crore. Based on the above valuation parameter, the AMC’s valuation works out roughly to anywhere between R3,500 crore and R4,700 crore. So, a 10% dilution could get the four PSUs anywhere between R350-470 crore, while a 25% dilution could fetch them R875-1,175 crore.
However, if the valuation is done based on the break-up of debt and equity assets, the AMC gets valued at anywhere between R2,826 crore and R3,615 crore. The AMC has debt assets worth R47,660 crore and equity assets worth R31,222 crore as of June 30, 2014.
According to market observers, UTI’s legacy and brand recognition, combined with a robust distribution network and access to PSU money could work in its favour. The AMC has been consistently profitable and posted a net profit R148.9 crore for FY13. In November 2009, T Rowe Price had agreed to buy a stake in UTI AMC for about $140 million, or about R650 crore, valuing the fund house at about R2,500 crore, or 3.2% of its average assets under management. Experts said the valuations were on the lower side as the US-based investment firm brought a minority stake in UTI.
UTI MF currently has five shareholders, with T Rowe Price owning 26% stake in the company, and SBI, Punjab National Bank, Bank of Baroda and Life Insurance Corporation holding 18.5% each. The PSUs are likely to offload their shares in the event the government chooses to list the AMC on the bourses.
Unfortunately, UTI MF has been in the news for all the wrong reasons in the past two years as it struggled to appoint a new chief after erstwhile chief UK Sinha left the firm in February 2011. ?The fund house is slow in decision-making. It had frequent management changes at the top and has Union issues. Every time a new government comes, they have a different agenda for UTI,? said a fund house CEO.
?UTI had a great legacy but some of the advantage that it brought has been frittered ,? said Dhirendra Kumar, CEO, Value Research, a mutual fund tracker. He believes the present structure of four PSU shareholders with equal weightage hasn?t been good for the company.
Leo Puri, managing director of UTI AMC, could not be reached for comments.
UTI was the number one player in terms of the assets it managed till FY06. It then slipped to the number 3 position at the end of FY07, number 4 in FY09 and eventually to number 5 at the end of FY12.
The finance ministry has asked banks to explore the possibility of hiving-off non-core businesses, including insurance and mutual funds, to raise funds to meet Basel-III capital-adequacy norms. This is one reason the buzz of an IPO has gained ground in recent weeks. The AMC had wanted to go public way back in 2008 but put its IPO plans on the backburner owing to volatile market conditions.