Reliance Nippon Life Asset Management

Transcription

1 Ready to enjoy the investment October 26, 2017 R Sreesankar rsreeshankar@plindia.com Pritesh Bumb priteshbumb@plindia.com Vidhi Shah vidhishah@plindia.com Rating Price Band Subscribe Rs247 Rs252 Reliance Nippon Life Asset Management Ltd (RNAM) is the second largest profitable and the third largest in AUM. It is promoted by the ADAG group and Nippon Life of Japan. The promoters are coming out with an offer for sale of equity shares of Rs91.8bn and fresh issue of Rs6.12bn with dilution of 15% at a price range of Rs At the upper band of Rs252, the company trades at 36.6x Mar 17 EPS which we believe is fairly priced, but given the liquidity in the markets and company s performance in the recent past, we recommend to Subscribe for long term gains. One of the largest profitable AMCs in India: RNAM is one of the largest AMC in India, 3 rd largest MF in terms of QAAUM and second most profitable with a market share of 11.4%. RNAM has also a suite of products focussed on customer centricity, digital innovations and processes. IPO Note IPO Fact Sheet Opening Date October 25, 2017 Closing Date October 27, 2017 BRLMs JM Financials, Citic CLSA, Nomura, Axis Capital Issue Size (OFS) Rs15.11bn Rs15.42bn Objects of the Issue Offer for sale from Promoters and fresh issue for general purpose Highest total MF AUM from smaller cities and towns (B15 cities): RNAM has strong presence in smaller towns and cities and they have the largest MF AUM from smaller cities and towns (B15 cities), second highest retail MAAUM, with 171 branches pan India with approximately 58,000 distributors with over 7 million investor folios. Macro factors favouring growth in AUMs: Strong growth in AUMs led by macro factors like rise in financial savings and growth in AUMs from B15 cities leading to better revenue and profits. In addition, India is an under penetrated market where share of financials assets are increasingly becoming a preferred option. Return ratios remain robust: RNAM has been having strong return ratios in excess of 20% for the last three years. With revenue growth of 7.8%, 9.6%, 13.1% and 14.4% for the last four years the company is strongly placed. Issue Details Pre issue equity (m shares) Post issue equity (m shares)* Post issue Market Cap (Rs bn)* Key Financials (Y/e March) Revenue from operations 6,618 8,218 11,642 12,696 Growth (%) 12.2% 24.2% 41.7% 9.1% Total income 7,840 9,301 12,711 14,004 Operating Profit /(Loss) 3,670 4,524 5,162 5,821 PAT 3,023 3,496 3,901 4,056 Growth (%) 51.9% 15.6% 11.6% 4.0% EPS, Rs Book Value, Rs Share Holding (%) Pre Issue Post Issue* Promoters Public & Others 15.0 *Equity issuance calculated on higher band price Profitability & valuation RoE (%) P/E (x) P/B (x) Source: Company Data; PL Research Note (1) Valuations based on upper band Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report

2 Company Overview Reliance Nippon Life Asset Management Ltd (RNAM) is promoted by Reliance Capital Ltd (RCL an RBI registered NBFC) and Nippon Life Insurance (NLI), one of the leading private life insurers in Japan with assets of approximately US$577bn. RCL belongs to the ADAG group while NLI has an operating history of over 125 years in wide range of financial products including individual and group life annuity policies. Exhibit 1: Corporate structure Mutual Fund Industry A mutual fund is a professionally managed investment scheme that raises capital or investment from a group of people and uses the pooled capital to invest in different types of securities like equities, bonds, money market instruments and other securities. MFs can be classified into various categories based on their structure, investment style and investment objective. There are different types of MFs. Open ended and close ended funds. As the name suggests the open ended schemes are available for subscription and redemption every business day, while the close ended fund is one which has a specified tenor and a fixed maturity date and is open for subscription only during the initial offer period. These schemes may be spread among the different asset classes like (i) equities including diversified, sector, index and tax saving schemes, (ii) debt funds including liquid/mmfs, Gilt funds and Bond funds, (iii) Balanced/Hybrid funds, (iv) ETF funds and (v) Gold funds. October 26,

3 Growth of the Mutual Fund Industry The evolution of the MF industry can be categorized into four phases. (Phase I ), (Phase II ), (Phase III ), (Phase IV Post 2003) The Mutual Fund (MF) Industry in India started with the setting up of Unit Trust of India (UTI) way back in For twenty five years, UTI remained India s only player in the MF industry. The AUM increased from Rs250mn in 1965 to Rs67bn in In 1987/88, public sector entities led by State Bank of India and Canara bank set up their MFs. The industry was opened up for the private sector in 1993 and from then on the growth has been steady and the same has gained momentum in the last one decade. In 2003, the UTI act of 1963 was repealed. Since then, the MF industry has witnessed a healthy growth. As at June 30, 2017 there are 41 Mutual Fund houses in the country with a total AUM of Rs19.5 trillion spread across various schemes. October 26,

4 RNAM Overview RNAM is one of the largest asset management companies in India with a total AUM of Rs bn as at 30, June Company is involved in managing (i) mutual funds, (ii) managed accounts including portfolio management services (PMS), alternate investment funds (AIF) and pension funds, (iii) offshore funds and advisory mandates. The company has also a market share of 11.4% and has been the second most profitable asset management company in India. In the mutual fund operations, they manage Rs bn with 7.01mn investor folios, spread over 55 open ended schemes including 16 ETFs and 174 close ended schemes. RNAM has 171 branches and 58,000 distributors as at June 30, In the managed accounts business, company provides PMS services to HNIs, institutional investors including EPFO and CMPFO. In addition, RNAM also manages offshore funds through subsidiaries in Singapore and Mauritius and the company also has a representative office in Dubai which helps them to cater to investors across in Asia, Middle East, UK, US and Europe. October 26,

5 Investment Highlights Macro factors Exhibit 2: India is one of the fastest growing economies India is the sixth largest economy in the world. Despite the increasing size, India continues to be one of the fastest growing economies on a relative basis to the global economies. However, the country is under penetrated market in terms of the AUM/GDP. (Refer exhibit 3). As the share of the financial assets see an increase, we expect the MFs to become a preferred option. With the MF penetration on the rise, the MF industry is expected to have a better growth opportunities going forward. Exhibit 3: Currently an under penetrated market in terms of AUM/GDP October 26,

6 Over the last three years, the equity AUMs has grown at a CAGR of 45% Vs the debt growth of 21%. Significant amount of the growth in equity AUMs have come from the retail segment. Strong inflows vide Systematic Investment Plans (SIPs), where the average inflow has grown from Rs37bn in FY17 to Rs47bn in June 17 had aided in the faster growth The company has varied diversified base of 7.01 million investor folios million Of these folios were of retail investors. They have 171 branches spread over 145 districts Exhibit 4: Share of Financial Assets on the rise with MFs becoming a preferred Option Exhibit 5: India s MF penetration is on a rise Mutual fund industry which has started seeing faster growth thanks to the increased penetration level and is expected to see the growth momentum maintained. October 26,

7 Strong growth over the last few years and expected to grow at a CAGR of 20%, Equity AUM grew at 45% CAGR Vs Debt CAGR of 21% Exhibit 6: Retail contributes larger portion of the equity AUM and has a higher holding period SIP has been slowly catching up a major tool in terms of channeling savings. RNAM has had an average SIP inflow of Rs37bn in FY17 and the average has already increased to Rs47bn in June FY17. Importantly, retail has contributed a larger portion of the equity AUMs and has also seen a higher holding period. October 26,

8 Exhibit 7: Strong net inflows including through SIPs, SIP monthly average inflow of Rs37bn (FY17), increased to Rs47bn (June17) Top 15 cities contributed 85% of the equity inflows in The same has been steadily seeing a decrease in terms of percentages and today stands at 82% as at June Despite the huge flows that were seen during this period, the flows from the B15 cities have been relatively on the higher side. Exhibit 8: Top 15 cities contribute majority of the AUMs, B15 cities expected to increase Unlike in the Top 15 cities where the share of the retail investors in the equities is 16%, the B15 cities see more than 46% of their collection of AUMs finding its way into equities. October 26,

9 Exhibit 9: Retail and HNI investors to drive growth in B15 locations Exhibit 10: B15 contributes greater % to equity AUM While the top 15 cities may see more contribution in the direct plan, B15 cities see a dominant role of the distributors. Exhibit 11: B15 AUM are more dependent on distributors Exhibit 12: RNAM has the second highest profitability October 26,

10 The top ten players had commanded 77% of the market in FY13 and now command 81% of the market. The top five players are seeing market share gains, moving up from 53% of the market in FY13 to 57% in June RNAM has a 11.8% market share and has a profitability of 0.24% of AAAUM. Exhibit 13: Top five players dominate the market. Exhibit 14: Top 10 players have higher profitability RNAM A leading Asset management player RNAM have four distinctive advantages like size and scale, growth and profitability, large investor base and finally strong brand equity of the promoters. This has resulted in the overall AUMs growing from Rs1.6trn in FY13 to Rs3.84trn in Aug 17. Exhibit 15: 22% CAGR in AUM (Mar13 Mar17) Exhibit 16: Mutual Fund MAAUM SIPs have been a strong story for the MF industry. While there were 1.3mn SIP accounts in Apr 15 collecting an average of Rs2.7bn a month, the same stands at 1.86mn customers with an average collection of Rs5.1bn of monthly flow in June 17. As at June 17, 77% of the new SIPs have a tenure of over 5 years, with the higher tenure indicating continuity and sustainability of the flows. October 26,

11 Exhibit 17: Growing SIP book RNAM uses multiple channels for the distribution of their products. Distributors contribute 54% while the direct channel contribute 46% of the AUM. Exhibit 18: Multi channel distribution network across India, Distributors contribute 54% and Direct channel 46% of MAAUM The retail AUMs have been steadily raising from Rs93bn in FY13 to Rs606bn in Aug The average ticket size has also seen an increase from Rs40044 to Rs during the same period. October 26,

12 Exhibit 19: Retail investors growth in AUM The performance of the funds has been good giving strong returns. (Exhibit 20) Exhibit 20: Distinguished investment record October 26,

13 Exhibit 21: Exchange Traded Funds(ETF) The Exchange Traded Funds (ETFs) have seen a three year CAGR of 61% (FY14 FY17), higher than the overall AUM growth of 27% across the same period. The EPFO have invested Rs bn in ETF in the last two years. RNAM currently manage 16 ETFs across all asset classes, equity, debt, liquid and gold. They have also acquired the management rights of Goldman Sachs schemes in India in November Experienced Management Team The company has a strong board of directors with MR V N Kaul as the non executive chairman, two members from Nippon Life and four other Independent directors with the CEO Mr Sundeep Sikka. In addition they are also ably assisted by a strong investment team led by Manish Gunwani (CIO) and backed up by professionals. Strong Capital Return Ratios The financial performance has remained strong. The ROE has improved from 17% in FY14 to 21% in FY17. The overall revenue has been consistent at 0.8% of the AUM for the last four years. With the equity markets continuing to do well for the last four years and with the equities contributing significant part of the fees, the profitability has been better. Equities contributed 58.8% and Debt contributed 36.7% of the fees. October 26,

14 Exhibit 22: xxx Proceeds of the issue Key growth strategies of the company include opening of branches, grow distributor network, increase investor base and improve the brand awareness. A part of the proceeds will also be used for focus on developing AIF and overseas business. RNAM plans to expand the business by adding 150 new branches, re locate some of 54 existing branches, broaden distributor base to grow the share of retail AUM including from B15 locations among others. October 26,

15 Exhibit 23: xxx October 26,

16 Financials Exhibit 24: Profit & Loss Account (Rs m) Y/e March FY13 FY14 FY15 FY16 FY17 Q1FY18 Revenue from operations mgmt fees 5,900 6,618 8,218 11,642 12,696 3,536 Other income 1,227 1,222 1,083 1,069 1, Total Revenue 7,127 7,840 9,301 12,711 14,004 3,782 Operating Expenses 3,947 4,170 4,777 7,548 8,183 2,525 Diminution in value of investments 6 Total Expenses 3,953 4,170 4,777 7,548 8,183 2,525 Profit before tax and exceptional items 3,173 3,670 4,524 5,162 5,821 1,257 Exceptional items Profit before tax 2,617 3,613 4,522 5,158 5,821 1,257 Income Tax expenditure ,026 1,257 1, Profit after tax 1,990 3,023 3,496 3,901 4, Growth (%) 51.9% 15.6% 11.6% 4.0% Exhibit 25: Balance Sheet (Rs m) Y/e March FY13 FY14 FY15 FY16 FY17 Q1FY18 Sources of Fund Share Capital Reserves And Surplus 14,063 15,270 14,775 17,235 18,288 16,120 Networth 14,178 15,382 15,187 17,650 18,703 16,535 Growth (%) 8.5% 1.3% 16.2% 6.0% Non current liabilities Trade payables 850 1,374 1,316 1,100 1,286 2,113 Other current liabilities Short term provisions 881 1,406 1,410 1,134 1,383 2,247 Total 15,087 16,812 16,630 18,858 20,198 18,912 Application of Funds Fixed assets ,509 2,448 Non current investments 3,136 3,240 4,339 5,616 6,367 6,265 Long term loans and advances 7,827 1,195 2,942 3,764 1,369 1,638 Current investments 2,598 4,296 4,110 3,641 3,371 1,656 Trade receivables Cash and bank balance Short term loans and advances 692 7,257 4,442 4,492 5,709 5,428 Total 15,087 16,812 16,630 18,858 20,198 18,912 October 26,

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