a © Sunil Matkar Heres why UTI AMC is trading at a discount to IPO price in grey market

UTI Asset Management Company, the second largest asset management company in India in terms of total AUM, has started trading at a discount price compared to its final issue price despite positive market trend, ahead of its listing.

In fact, it slipped below the IPO price soon after the issue closed on October 1 even though the company had launched issue at a discount to listed peers.

At the time of issue opening on September 29, it was trading at a premium of Rs 45 over IPO price in the grey market, sources familiar with the development told Moneycontrol.

UTI AMC shares are expected to get credited to accounts of eligible investors by October 9 and it is expected to list shares on October 12.

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The subdued response to its Rs 2,160-crore public issue is one of the key reasons for the discounted price in the grey market. Other reasons could be the low HNI subscription, weak FY20 earnings of the company and the recent outflow of AUMs, experts feel.

The IPO was subscribed 2.31 times during September 29-October 1, with qualified institutional buyers reserved portion witnessing 3.34 times subscription, HNIs portion at 93 percent, retail at 2.32 percent and employees 1.34 percent.

Grey market is basically driven by HNIs who put in bids to subscribe for the shares beyond their allocated portion, UTI AMC saw only 93 percent subscription by HNIs and this shows the lack of interest of HNIs in this IPO which is affecting the grey market premium, Gaurav Garg, Head of Research at CapitalVia Global Research told Moneycontrol.

The IPO itself was lacklustre and therefore the premium has come down despite an otherwise positive trend in the primary market, he said.

Jaikishan Parmar, Senior Equity Research Analyst at Angel Broking feels investors might have been concerned about the recent loss in AUMs and subdued response for SIP of the Mutual fund Industry.

Mutual funds industry has witnessed consistent outflow in the last four months. Investors booked profits lately as market surged around 50 percent since March lows.

The data indicated that mutual funds were net sellers to the tune of nearly Rs 23,000 crore during June-September 2020.

Another factor for subdued response in IPO could be FY20 profitability, which was a bit compressed largely owing to a) Decline in management fees of about Rs 52 crore due to issues in the debt mutual fund business; b) In some of the high-yield fixed-income funds, fresh subscriptions were stopped and exit load was reduced; c) Marked-to-market (MTM) loss on treasury investments, said Parmar.

UTI AMC has reported a profit of Rs 276.49 crore in FY20 against Rs 347.93 crore in FY19 and the revenue in same periods declined to Rs 854.97 crore from Rs 1,050.51 crore.

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Parmar feels UTI AMC has the potential to regain its market share and increase return ratio, though the company has launched its IPO at discount compared to listed peers.

At the upper end of the IPO price band (Rs 552-554 per share), it is offered at 25.4x its FY20 earnings and 5.25 percent of Q1FY21 QAAUM, demanding Rs 7,024 crore market cap, which we believe is reasonable. Further, listed peers like HDFC AMC trades at 35x FY20 earnings and Nippon AMC trades at 37x FY20 earnings. Additionally, HDFC and Nippon AMC trade at 12.56 percent and 8.55 percent of Q1FY21 QAAUM, respectively, Parmar had said while subscribing the issue.

UTI AMC is the second largest asset management company in India in terms of total AUM and the eighth largest asset management company in India in terms of mutual fund QAAUM as of June 2020. It also had the largest share of its monthly average AUM attributable to B30 cities of the top ten Indian asset management companies by QAAUM.

Board has approved a higher dividend policy which will also help to some extent improve the return ratio. UTI AMC has a well-diversified and strong presence in B30 cities, where SEBI has allowed charging additional 30 bps and these inflows are sticky. The company has penetrated well into in the B30 cities as its over 250 development officers and Chief Agents are based in B30 cities. The 24 percent of its overall AUM in B30 geographies, UTI has the highest concentration in B30 markets among the Top 10 AMCs, Parmar said.

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The IPO was an offer for sale by current five shareholders - State Bank of India, Bank of Baroda, LIC, Punjab National Bank and T Rowe Price International. Hence all the money will to these shareholders.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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