Finally, asset management companies in India are getting listed. Well, at least one is.
The initial public offering, or IPO, Reliance Nippon Life AMC is set to hit the market on October 25 with a price band of Rs 247-252 per share. Bids can be made for a minimum of 59 shares and in multiples of 59 shares thereafter. The company expects to mop up Rs 1,500 crore by offering 6.12 crore shares, comprising fresh issue of 2.44 crore shares and 3.67 crore share sale by existing shareholders. Currently, the promoters Reliance Capital and Nippon Life Insurance Company hold 46.57 % and 49 % respectively. Post IPO, their stake would come down to 42.88 % each.
The company intends to utilize Rs 165 crore from the fresh issue for acquisitions. It had acquired the schemes of Goldman Sachs in 2015. Besides acquisitions, the AMC will use the IPO proceeds to set up new branches and relocating certain existing branches, upgrading the IT system, advertising, marketing and brand building activities and lending to its subsidiary Reliance AIF.
This IPO by Reliance Nippon AMC is the first in the asset management industry. Having said that, it is worth remembering that during the earlier bull run of 2007, UTI Mutual Fund under the leadership of U K Sinha had sought government approval to float its IPO. Unfortunately, the global economic crisis that followed the very next year put a spoke in the wheel. Talks of an IPO again arose in 2013 but did not fructify.
Kaustubh Belapurkar, Director of Manager Research at Morningstar Investment Advisers, expects more asset managers to follow suit and file for listings. He points to the phenomenal growth of the fund industry over the last few years and the buoyant stock market. This makes the time ripe to unlock opportunity. He also believes that listings will result in a greater focus on asset growth and profitability.
This trend follows the global one. Franklin Templeton, BlackRock and Invesco are all listed abroad, though prominent managers like Vanguard and Fidelity continue to be privately held.
Insurance is also the new theme playing out in this space. It began with the IPO of ICICI Prudential Life Insurance. The national re-insurer General Insurance Corporation of India (GIC Re) is now in the news for that very reason to be followed by other players such as SBI Life Insurance, ICICI Lombard General Insurance and New India Assurance.
The timing is perfect and players are capitalizing on the current buoyancy in the Indian stock market. According to a report by the India Brand Equity Foundation, there are 24 life insurance companies (only Life Insurance Corporation, or LIC is the public sector company) and 29 non-life insurers (only 6 public sector insurers). The potential for this market is amazing since India currently accounts for less than 1.5% of the world’s total insurance premiums, yet has such a burgeoning population. India’s life insurance sector is the biggest in the world with about 360 million policies which are expected to increase at a CAGR of 12-15% over the next five years. The country’s insurance market is expected to quadruple in size over the next 10 years from its current size of $60 billion.
As with any investment, look for quality and scalability and growth. In other words, all the factors that go into analyzing a good business, be it a primary or secondary market offering. Not all IPOs are a profitable proposition. In fact, many are being priced at high valuations. Tread with caution.
