Aditya Birla Sun Life AMC
Aditya Birla Sun Life AMC is coming out with a 100% book building; initial public offering (IPO) of 3,88,80,000 shares of Rs 5 each in a price band Rs 695-712 per equity share.
Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
The issue will open for subscription on September 29, 2021 and will close on October 1, 2021.
The shares will be listed on BSE as well as NSE.
The face value of the share is Rs 5 and is priced 139 times of its face value on the lower side and 142.40 times on the higher side.
Book running lead managers to the issue are Kotak Mahindra Capital Company, BofA Securities India, Citigroup Global Markets India, Axis Capital , HDFC Bank, ICICI Securities, IIFL Securities, JM Financial, Motilal Oswal Investment Advisors, SBI Capital Markets and Yes Securities (India).
Compliance Officer for the issue is Hemanti Wadhwa.
Profile of the company
The company is ranked as the largest non-bank affiliated AMC in India by QAAUM since March 31, 2018, and among the four largest AMCs in India by QAAUM since September 30, 2011. It managed total AUM of Rs 2,936.42 billion under its suite of mutual fund (excluding its domestic FoFs), portfolio management services, offshore and real estate offerings, as of June 30, 2021. It has achieved this leadership position through its focus on consistent investment performance, extensive distribution network, brand, experienced management team and superior customer service.
Since the company’s inception in 1994, it has established a geographically diversified pan-India distribution presence covering 284 locations spread over 27 states and six union territories. Its distribution network is extensive and multi-channeled with a significant physical as well as digital presence, and included over 66,000 KYD-compliant MFDs, over 240 national distributors and over 100 banks/financial intermediaries, as of June 30, 2021. It managed 118 schemes comprising 37 equity schemes (including, among others, diversified, tax saving, hybrid and sector schemes), 68 debt schemes (including, among others, ultra short-duration, short-duration and fixed-maturity schemes), two liquid schemes, five ETFs and six domestic FoFs, as of June 30, 2021. Its flagship schemes include Aditya Birla Sun Life Frontline Equity Fund and Aditya Birla Sun Life Corporate Bond Fund, both of which have grown to become leading funds in India under its management.
The company is currently set up as a joint venture between ABCL and Sun Life AMC. ABCL is the listed non-operating holding company of the financial services businesses of the Aditya Birla group, a Fortune 500 global conglomerate. Through its various subsidiaries, ABCL managed total AUM of Rs 3,432.66 billion, had a consolidated lending book of over Rs 571.82 billion and an active customer base of over 25 million customers, as of June 30, 2021. Sun Life Financial Inc., the ultimate holding company of Sun Life AMC, is a leading international financial services organization providing insurance, wealth and asset management solutions to individual and corporate clients. Sun Life Financial Inc. had a market capitalization of C$37.43 billion and total AUM of C$1,360.69 billion, as of June 30, 2021.
Proceed is being used for:
Achieving the benefits of listing the equity shares on the Stock Exchanges.
Carrying out the Offer for Sale of up to 38,880,000 equity shares by the selling shareholders.
Mutual fund assets in India have seen robust growth, especially in recent years, driven by a growing investor base due to increasing penetration across geographies, strong growth of capital markets, technological progress, and regulatory efforts aimed at making mutual fund products more transparent and investor friendly. Although mutual fund AUM as a percentage of GDP has grown from 4.3% in the financial year 2002 to approximately 16% in the financial year 2021, penetration levels remain well below those in other developed and fast-growing peers.
The Indian mutual fund industry has a history of over 50 years, starting with the passing of an Act for the formation of the Unit Trust of India (UTI), a joint initiative of the Government and the RBI in 1963. The Act came into force on February 1, 1964, with the formation of UTI. It was regulated and controlled by the RBI until 1978, and thereafter by the Industrial Development Bank of India. UTI launched its first scheme, Unit Scheme 1964, in 1964 and its AUM reached Rs 67 billion by 1988. In 1987, other public sector banks entered the mutual fund space. SBI Mutual Fund was set up in June 1987, followed by the launch of Canbank Mutual Fund in December 1987. Subsequently, other entities such as Life Insurance Corporation of India, Punjab National Bank, Indian Bank, Bank of India, General Insurance Corporation of India, and Bank of Baroda opened their own mutual fund houses, bringing the industry assets to Rs 470 billion by 1993-end.
The mutual fund industry’s QAAUM grew approximately 19% year-on-year in the financial year 2021. In the long term, i.e. between June 2021 and March 2026, the overall industry’s AUM is projected to sustain a high growth trajectory of between 11% and 13% CAGR, reaching Rs 57 trillion. Growth is expected to be driven by (i) pick-up in corporate earnings following stronger economic growth, higher disposable income and investable household surplus, (iii) increase in aggregate household and financial savings, (iv) deeper regional penetration as well as better awareness of mutual funds as an investment vehicle, (v) continuous improvement in ease of investing, with technological innovations and expanding internet footprint, and (vi) perception of mutual funds as long-term wealth creators, driven in part by initiatives like the Mutual Fund Sahi Hai campaign.
Pros and strengths
Long-term track record of innovation: The company has a history of innovation in the mutual fund area in the use of technology to service its investors. It is committed to enhancing its digital platforms and expanding its online reach, as technological developments play an important role in all aspects of its business and investor interaction, from onboarding to self-service, engagement and executing transactions. The company utilizes automation and digitization initiatives primarily towards improving scalability by ensuring superior and continuously improving customer service as well as increasing efficiency and reducing costs. It has deployed a number of technology initiatives to enhance its customers’ experience including implementation of digital paperless onboarding, video facility for KYC processes, transaction processing via social media applications, data analytics to generate models for pre-approved offers, and voice-based customer services, as well as features such as optical character recognition, facial recognition, geotagging and e-signatures. In 2016, it launched its “Active Account” application, which facilitates quick and easy transactions in liquid funds. Its digital platforms also serve to provide seamless connectivity with all its key distribution channels in order to drive synergies of financial planning, efficient distribution, order processing and servicing.
Diversified distribution network: The company has established a geographically diversified pan-India distribution presence that is not only extensive but multi-channeled, with a significant physical as well as digital presence. As of June 30, 2021, it had a presence in 284 locations, comprising 194 branches in India (and three outside India), spread over 27 states and six union territories, which were supplemented by 90 EM representatives. Of these, 143 branches and all 90 of its EM representatives were located in B-30 cities. EM areas are untapped markets in India which have a high potential of assisting in growing its AUM and expanding to new catchment areas without material capital expenditure. Successful EM representative-led areas generally result in the establishment of branches, and in the three months ended June 30, 2021 and the financial year 2021, it converted 5 and 15 EM locations, respectively, into branch offices. Its hub and spoke model further enables it to more effectively leverage its extensive branch and EM representative’s network as well as keep distribution costs low.
Franchise led by experienced and stable management: The company’s business is managed by a well-qualified and driven senior management team that has significant experience and deep understanding of all aspects of its business and operations. Several members of its senior management team have been with it for over 15 years and have, together, been instrumental in the growth and success of the company thus far. The strength and quality of its senior management team and their expertise in the financial services industry has enabled it to identify and take advantage of market opportunities, as well as effectively respond to and leverage from macroeconomic changes, competitive changes and technological developments in Indian and global markets. Its investment performance is further supported by its stable and experienced investment teams with extensive industry experience and an average of 16 years in their respective fields. Its investment teams include experts and professionals with ground level knowledge of the asset management and financial services industries. The strong execution capabilities of its management and investment teams have successfully scaled its business with improving profitability over the last decade.
Diverse product portfolio: As of June 30, 2021, the company managed 112 mutual fund schemes, several of which have recorded superior performance compared to industry averages, as well as six domestic FoFs. It also provides portfolio management services, offshore funds and alternative investments. Further, its fund offerings can be customized to meet an individual’s specific financial goals in the form of savings solutions, regular income solutions, tax saving solutions and wealth solutions. Its well-diversified product suite has allowed it to cater to the varying needs and risk profiles of its investors and effectively navigate through changes in economic conditions. It consistently demonstrate strength in its variety of product offerings and have a long history and track record of innovation in schemes, with certain of its schemes being the first of their kind in India. It has been able to successfully enhance its portfolio of schemes through its rigorous and research-driven product development processes and focus on identifying pockets of differentiation. Further, its disciplined and structured investment processes have led to strong performance across its schemes.
Risks and concerns
Revenue and profit depends on value and composition of AUM of schemes: The significant majority of company’s revenue comes from management fees charged by it on the assets it manage. Its revenue from operations – fees and commission income for the three months ended June 30, 2021 and the financial years 2021, 2020 and 2019 was Rs 3,031.69 million, Rs 10,679.07 million, Rs 11,596.70 million and Rs 13,267.74 million, respectively, representing 90.16%, 88.56%, 93.92% and 94.28% of its total income, respectively. Its fees are usually calculated and charged to investors as a percentage of the AUM of the schemes managed by it. As of June 30, 2021 and March 31, 2021, 2020 and 2019, its equity-oriented QAAUM amounted to Rs 1,026.78 billion, Rs 969.34 billion, Rs 875.59 billion and Rs 890.62 billion, respectively, and its debt-oriented QAAUM amounted to Rs 1,296.47 billion, Rs 1,285.38 billion, Rs 1,101.91 billion and Rs 978.46 billion, respectively. As of the same dates, it managed a closing AUM amounting to Rs 18.28 billion, Rs 17.59 billion, Rs 20.55 billion and Rs 29.49 billion, respectively, under its portfolio management services. Any decrease in such AUM will cause a decline in its fees and therefore its revenue from operations and, consequently, net profit. The AUM may decline or fluctuate for various reasons, many of which are outside its control. Further, these factors may inhibit its ability to grow its AUM which will adversely affect its revenue from operations and net profit.
Depend on third-party distribution channels and other intermediaries: The company is committed to growing its distribution network by expanding its geographical reach and deepening its existing presence, in order to increase its AUM. However, it cannot assure you that it will be able to do so within anticipated timelines, or at all. It also depends on referrals from investment consultants, financial planners and other professional advisors, as well as from its existing investors and employees. Maintaining good relations with these intermediaries is key to attracting and retaining investors. Loss of any of the distribution channels afforded by distributors, and the inability to access investors through new distribution channels, could decrease AUM of the schemes managed by it and adversely affect its management fees and revenue. It rely on distributors to maintain good relations with its investors as they are often the link between it and existing or prospective investors and therefore the manner in which such intermediaries conduct themselves, and market and service its products, may affect its reputation and business.
Business subject to extensive regulation: As an asset management company, the company is regulated by SEBI through a variety of regulations, guidelines, circulars and notifications issued from time to time as applicable for mutual funds, PMS and AIFs. For instance, the SEBI Mutual Fund Regulations govern a wide range of issues in connection with a mutual fund, including the constitution and management of a mutual fund. The SEBI Mutual Fund Regulations also provide that any change of control, as defined therein, with respect to the company would require, among other things, prior approval of SEBI and the Trustee and it would be required to provide the unit holders an option to exit on the prevailing NAV without any exit load. In addition, SEBI has issued separate regulations governing portfolio managers and alternative investment funds (which includes venture capital and private equity funds). If the company fails to comply with any regulations or guidelines, it may be subject to fines, sanctions and court proceedings. Compliance or other costs may rise due to changes in regulations, which may reduce its profit or put it at a competitive disadvantage.
Competition: The mutual funds industry is rapidly evolving and intensely competitive and it expect competition to continue and intensify in the future. Low barriers to entry have also resulted in a large number of smaller participants entering the market. It is possible that there may in the future be consolidation in the market, amongst the smaller market participants, between such smaller participants and the larger participants, or between the larger participants. Any such consolidation may create stronger competitors in the market overall, or leave the company at a competitive disadvantage. The company face significant competition from companies seeking to attract investors’ financial assets, including traditional and online brokerage firms, other mutual fund companies and financial institutions. It face intense competition from other asset management companies in the market. Its competitors may offer a wide range of financial products and services, at lower investment management fee, with a wider distribution network.
Incorporated in 1994, Aditya Birla Sun Life AMC is set up as a joint venture between ABCL and Sun Life AMC. The company managed a total AUM of Rs 2,736.43 Bn under mutual fund (excluding domestic FoFs), portfolio management services, offshore and real estate offerings, as of December 31, 2020. The company managed 135 schemes comprising 35 equity, 93 debt, 2 liquid schemes, 5 ETFs, and 6 domestics FoFs as of December 31, 2020. The company caters to a wide range of customers from individuals to institutions through this pan-India network and offering of customer solutions, which positions it well to attract a large segment of the Indian mutual fund market across varying customer requirements and risk profiles and to develop a broad customer franchise with a strong retail customer base. Its leadership position, product mix, cost base and scale has contributed to its strong financial performance. It has maintained a market leading position in B-30 penetration over the years, which has further contributed to the growth of its individual investor base as well as improvement in profitability. On the concern side, the company’s revenue, results of operation, business and prospects are, to a certain extent, dependent on the strength of its brand and reputation, as well as the brand and reputation of its Promoters, Aditya Birla Capital Limited and Sun Life AMCand entities in the Aditya Birla and Sun Life groups. Besides, it requires several statutory and regulatory permits, licenses and approvals to operate its business. Many of these approvals are granted for fixed periods of time and need renewal from time to time.
The issue has been offered in a price band of Rs 695-712 per equity share. The aggregate size of the offer is around Rs 2702.16 crore to Rs 2768.25 crore based on lower and upper price band respectively. On the performance front, total income decreased by 2.34% to Rs 12,058.41 million for the financial year 2021 from Rs 12,347.68 million for the financial year 2020 due to a decrease in revenue from operations, partially offset by an increase in other income. As a result of the foregoing, its profit for the year increased by 6.45% to Rs 5,262.80 million for the financial year 2021 from Rs 4,944.02 million for the financial year 2020. The company intends to continue to increase its footprint across India by focusing on growing its presence in B-30 cities and rural markets that remain underpenetrated and have less competition. It will continue to invest in upskilling its people to differentiate its teams from those of its peers in the rapidly evolving financial services sector. The company intends to continue to make its services seamlessly accessible on mobile platforms and its online portals by improving and maintaining easy to use applications for its investors and distributors, whom it expects to increasingly use such digital tools to access its services.