India’s first mutual fund IPO opened its account at a huge premium, in line with analysts’ forecasts
After being oversubscribed 81.21 times, the Rs 1,542-crore Reliance Nippon Life Asset Management (RNLAM) made its much-anticipated debut on the stock exchanges at Rs 294, a 17% jump over its issue price of Rs 252. Analysts had estimated the likely premium to be in the range of 19-22%, after the IPO garnered interest of over Rs 1.03 lakh crore when the bidding process concluded on October 27.
The company’s stock closed at Rs 284 on the Bombay Stock Exchange, after touching a high of Rs 298.70 and a low of Rs 278 during the day. At the time of bidding closure, the IPO’s retail portion was oversubscribed 5.48 times, with the offer receiving over 15.81 lakh applications from individual investors. The anchor book was oversubscribed 30 times, while qualified institutional buyers (QIB) and high networth investors (HNI) segments were oversubscribed 118.40 and 209.44 times respectively.
Currently ranked third in the Indian mutual fund house pantheon in terms of mutual fund quarterly average AUM, the company boasts of a market share of 11.4% as of June 30, 2017. “Reliance Nippon’s widespread investor base and long-standing relationships with distributors and investors, along with robust investment track record across multiple market cycles has helped drive its growth over the years,” HDFC Securities report on the IPO said. Besides, the mutual fund industry itself is expected to grow at a CAGR of 20% between the financial years 2018 and 2022, with the average AUM expected to grow to Rs 45 trillion by March 2022. “Growth rates are expected to be higher over the financial years 2018 and 2019 due to buoyant capital markets coupled with an increase in retail participation,” the report stated.
“We like RNLAM as it is the largest AMC with highly diversified product offerings and strong distribution reach,” said a Motilal Oswal Securities Limited (MOSL) report, highlighting growth in its AUM (22% CAGR), revenue (21%), EBITDA (28%) and PAT (15%) between financial years 2013-17. Analysts, however, have also highlighted some concerns. “RNLAM depends on third-party distribution channels and other intermediaries, and problems with these distribution channels and intermediaries could adversely affect its financial performance,” the MOSL report noted.
With this IPO, Reliance Nippon Life joins the league of financial services companies that have gone public in the last 15 months, riding on the back of the stock market bull run and heightened interest in the financial sector. The party started with ICICI Prudential Life Insurance’s offer for sale (OFS) in September 2016, with SBI Life Insurance, ICICI Lombard General Insurance, General Insurance Corporation of India and New India Assurance jumping on to the bandwagon in the subsequent months.
All offers have generated substantial interest, though analysts have warned that some valuations are stretched. Some bigwigs like ICICI Prudential, ICICI Lombard and GIC in fact made tepid debuts on the exchanges. AU Small Bank, which hit the market with its Rs 1900-crore issue in June, however, listed at a massive 47.5% premium over its issue price.