The SBI Mutual Fund IPO should come much earlier than 2 years
At a recent event, the SBI MF CEO announced that the SBI MF would also come out with an IPO in the next two years. The decision is hardly surprising considering the fancy run that stocks like HDFC AMC and Nippon AMC have had in the recent past. The demand for AMC stocks has far exceeded the supply of these stocks and this could be the opportune time for any mutual fund to list on the bourses. The only point is why 2 years; SBI should look to list its mutual funds business much sooner than that; probably in a few months.
HDFC AMC creates magic
The stock of HDFC AMC has nearly doubled in the last few months. The stock already had a very healthy listing and this has resulted in rich valuations. Consider the numbers. HDFC AMC has an AUM of close to Rs.380,000 crore. On that AUM it has garnered a market capitalization of Rs.79,000 crore. That is a market cap / AUM ratio of 21%. If you look at any of the AMC buyout deals in the recent past, the average money paid has been between 7% and 9%. In this light, HDFC AMC is already commanding a valuation that is 21% of the AUM. Even if we assume that the AUM will keep increasing in the near future, the Total Expense Ratio (TER), which is the core income of the AMC, has been trending lower. In that light, this appears to be the opportune time to list mutual fund AMCs. Supply is short and valuations are at unbelievable levels.
Why SBI MF is a good bet
A listing of SBI MF will not only make sense to the fund and give it currency, but also help the SOTP valuations of the SBI parent. SBI MF currently has an AUM of Rs.321,000 crore but the equity AUM of SBI MF is larger than HDFC AMC and ICICI Pru AMC. Normally, the equity AUM is the key driver of valuation and from that perspective, SBI MF should get a valuation that is at least close to what HDFC AMC has been commanding. Today, State Bank of India is available in the stock market at a market cap of Rs.295,000 crore. At that price you can get a substantial ownership in SBI Life (valued at Rs. 1 trillion) and 100% stake in SBI MF. That means the SOTP should make the stock of SBI a lot more attractive. SBI MF has been one of the fastest growing funds in India and in the last 2 years it has entered the top-3 league. This IPO would only enhance the currency of the fund and also the SOTP valuations of SBI.
Time is the essence for the IPO
If SBI is really planning to list its mutual funds business, then the time is now. Waiting for 2 years may not make sense as a lot could change by then. Today, there is an appetite for strong AMC stocks just like for insurance stocks. SBI would do well to move on a war footing and push its IPO through quickly. The AUM and the valuations are in favor of an AMC listing and the time is now!
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