Research Digest | October 25, 2017
The objective of issuing Rs 100 Cr for investing towards continuing interest in new mutual fund schemes managed by the Company and Rs 165 Cr Funding in inorganic growth and strategic initiatives.
Pre IPO, Reliance Capital Limited holds 46.57% and Nippon Life Insurance Company holds 49.00% of RNAM`s total issued and paid up equity share capital of RNAM. And Post this issue, both the companies will hold 42.5% stake in the company as the IPO is divided into part offer for sale and part by new issue.
Company has market share of over 11.4% in mutual funds offerings in India. Reliance Nippon Life is involved in managing: 1) Mutual funds (including ETFs). 2) Managed accounts, including portfolio management services, alternative investment funds (AIFs) and pension funds. 3) Offshore funds and advisory mandates.
Company manages 55 open-ended mutual fund schemes including 16 ETFs and 174 closed ended schemes. Company has a network of 171 branches and over 58,000 as of June 30, 2017.
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Higher share of Active Equity: Reliance Nippon Life Insurance company has total asset under management (AUM) stood at Rs 3,62,550 crore as of June 30, 2017 and ranks 3rd in India followed by ICICI and HDFC AMC. Out of this total 3.6 lc crore of AUM, 2.09 lac crore, i.e. 58% is into Mutual Funds including ETF. The Active Equity that the company manages is nearly 20% of the total AUM. This is far ahead of its global listed peers. Globally, leading AMCs have 51% exposure in Equity but the active equity Component ranges only from 5% to10%. This keeps Reliance Nippon Life`s revenue growth drivers intact.
Source: Company RHP
High Growth in AUM, Trend to continue: Company managed 1.8 lac crore in Fy14 and now the AUM has grown double at 3.6lac crore in June 17. The company`s AUM has increased by 27.5% in FY17 and the industry itself is expected to grow at 20% CAGR over the next 4 years.
Listed Capital Market Share in India to grow higher:India`s share of listed capital market to total Market Capitalization is less than 1% while in US, the share is ~3% and in China it is ~4.4%. This also suggests that going forward the chunk of Indian Capital markets in India to total Market capitalization should go up. Reliance Nippon Life Insurance should be a major beneficiary having the first mover advantage in AMCs.
High dividend Payout: The Company has in the past paid 65% of the profits as Dividend. Current Dividend Yield works at around 1.7% which makes the company attractive.
Anchor Investors Interest: More than 50 global anchor investors have already applied for anchor allocation portion from the US, Japan, Singapore and India. These include sovereign wealth funds, mutual fund houses and private insurance companies.
Valuation higher than global peers but justified: The company is being offered at 4.2% of AUM while global listed peers trade around 1.9% of AUM. The high valuation seems justified considering the share of Active Equity and the immense growth potential in India which should keep the revenue growing for a longer period of time.
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