Reliance Nippon Life IPO opens today for subscription as India’s first public offer of shares from an Asset Management Company (AMC). The company is promoted by Anil Ambani’s Reliance Capital and Japan’s Nippon Life Insurance and is among the largest players in the segment in India. While there have been concerns about valuations, analysts have been largely positive in Reliance Nippon Life IPO recommendations. Here is a snapshot of Reliance Nippon Life IPO recommendations.
Motilal Oswal is bullish on the prospects of the company and has advised clients to invest in the IPO with a long-term horizon. The brokerage house noted RNAM’s diversified product offerings, extensive distribution reach, strong investment track record and strong ROE/ROCEs of 22%/ 25% as key strengths.
Choice Broking is also positive on the IPO and has justified the premium valuation on its leadership position and India’s underpenetrated market. “On valuation front, RNAM is demanding a valuation of 4.25% to its AUM, which is in-line to the recent deal done in Aug. 2017, wherein IIFL Special Opportunities Fund bought around 2.6% stake in the company for a consideration of Rs. 3.9bn, thereby valuing the firm to Rs. 150bn. Since there is no domestic peer, there is no benchmark for valuation. However, if we take few of the listed AMCs in US (considered to be highly penetrated market), the average multiple is 2.3% of the AUM. Higher valuation demanded by RNAM seems to be justified taking into the consideration the growth potential in the domestic market, recent deal as a reference and the first mover advantage in the listing of AMC in the domestic market,” noted Choice Broking’s note on the IPO.
Analysts at Angel Broking also recommend investors to subscribe to India’s first IPO of Asset Management Company (AMC). “At the upper end of the IPO price band it is offered at 37x its FY2017 EPS and 8x its FY2017 book value (Pre-IPO), demanding `15,442cr market cap, which is 6.8% of the MF AUM (`2,28,329cr for the month of August 2017). Considering that RNAM is the third largest AMC coupled with huge potential of MF industry to grow, strong return ratios, asset light business, higher dividend payout ratio and track record of superior investment performance, we are positive on this IPO and rate it as SUBSCRIBE,” said its research report on Reliance Nippon Life Asset Management IPO.
AUM Capital is also among brokers with positive Reliance Nippon Life IPO recommendations. “RNLAM with its highest market share and due to increase in market size for mutual funds might report higher growth in revenue in coming years. The Company aims to maintain its position in the sector by leveraging technology to make it easy for investors to carry out transactions. We believe that the company’s expansion of domestic as well as overseas operations along with inorganic growth in the areas of acquisition of AUM under mutual fund schemes, AIF schemes and portfolio management schemes will garner growth. Hence, we recommend to SUBSCRIBE the issue from a long term prospective,” said the firm’s research note.
Positive sentiment was also echoed by Way2Wealth which believes Reliance Nippon Life AMC is better placed compared to other domestic AMCs. “At a price band of Rs247-252, the asking valuations for RNLAML is 4.2% of AUM. There is no domestic pure-play AMC listed in India and globally AMC’s trade at 2.5%-3% of AUM. Due to low penetration in India, growth prospects of RNLAML is superior to AMC’s in the developed markets and with a greater proportion of equities and other high yielding products in the AUM compared to developed markets, we feel the premium valuations compared to AMC’s in the developed markets are justified and recommend investors with a long term investment horizon to SUBSCRIBE to the issue,” said its research report.
SPA Securities further added to the list of positive Reliance Nippon Life IPO recommendations. “RNLAMC has a market share of 11.5% and was ranked the 2nd most profitable AMC in India during 2016. The company’s QAAUM has grown at a CAGR of 22% over FY13-17, while their revenue and PAT has grown at 18.2% and 15% CAGR respectively over FY13-17. We believe favorable demographics, low penetration, underrepresentation of MFs as an asset class and deepening bond market will help the AMC to grow at a robust pace. Also, company specific levers such as diversified product mix, multi channel distribution network, strong investment track-record and experienced management team will help in maintaining a ROE of ~20% on a sustainable basis (avg ROE 22% for last 3 years). At the upper price band of Rs. 252 per share, the issue is valued at 8.1x P/BV and 4.3% of AUM. We recommend SUBSCRIBE to the issue as a good long term investment,” opined the brokerage house in its research note.
SMC Global Securities assigned a 3-star rating to the IPO citing strong fundamentals and leading competitive position. “Considering these facts, investors may opt the issue for long term horizon and as first listed; it’s likely to gain post listing,” said its research report.
Feel free to visit the discussion page on IPO Central to get an idea what fellow investors have to say about the offer.