Reliance Nippon Life IPO – First AMC IPO – Should you invest?
Reliance Nippon Life IPO Review
Reliance Nippon Life IPO would open for subscription on 25th October, 2017. Reliance Nippon Life Asset Management Ltd is one of the largest AMC company in India. Its revenues grew at 18% CAGR in last 5 years. It generated 28% in FY17. Since this is first AMC Company (Mutual Funds AMC) in India that is coming for IPO, it is attracting several investors. What are the positive factors in Reliance Nippon Life Asset Management Ltd IPO? What are the hidden factors in Reliance Nippon Life IPO? Is Reliance Nippon IPO Price is reasonably priced? In this article, I would provide some interesting insights and do Reliance Nippon Life IPO Review.
About Reliance Nippon Life Asset Management Ltd
They are one of the largest asset management companies in India, managing total AUM of Rs 3,625.50 billion as of June 30, 2017. They are involved in managing (i) mutual funds (including ETFs); (ii) managed accounts, including portfolio management services, alternative investment funds and pension funds; and (iii) offshore funds and advisory mandates. they theyre ranked the third largest asset management company, in terms of mutual fund quarterly average AUM with a market share of 11.4%, as of June 30, 2017, according to ICRA. For the financial year 2016, they theyre ranked the second most profitable asset management company in India, according to ICRA.
As part of company managed accounts business, they provide portfolio management services to high net worth individuals and institutional investors including the Employees’ Provident Fund Organisation and Coal Mines Provident Fund Organisation. company Subsidiary, Reliance AIF Management Company Limited manages two alternative investment funds, which are privately pooled investment vehicles registered with SEBI. Further, Reliance Capital Pension Fund Limited, one of company Group Companies, received a certificate of commencement of business as a pension fund manager from the Pension Fund Regulatory and Development Authority in 2009 and manages pension assets under the National Pension System. As of June 30, 2017, they managed total AUM of Rs 1,503.93 billion as part of company managed accounts business.
They are promoted by Reliance Capital Limited, an RBI registered non-banking finance company with business interests including in asset management and mutual funds, life, health and general insurance, commercial and home finance, stock broking, wealth management services, distribution of financial products, asset reconstruction and proprietary investments. Reliance Capital Limited is a part of Reliance Group, which has business interests in financial services, telecommunications, power, energy, infrastructure, and defense. The Reliance Group is led by Mr. Anil D. Ambani, one of India’s prominent business leaders. Company co-promoter, Nippon Life Insurance Company (“Nippon Life”) is one of the leading private life insurers in Japan with assets of approximately US$ 577.00 billion, as of March 31, 2017. Nippon Life offers a wide range of financial products, including individual and group life and annuity policies.
Reliance Nippon Life IPO Issue details
- IPO open date: 25-Oct-2017
- IPO close date: 27-Oct-2017
- Face Value: Rs 10 per share
- Issue price band: Rs 247 to Rs 252 per share
- Issue size: Approx Rs 1,524 Crores on higher price band
- Reliance Nippon Life IPO Lot size: 59 shares and 59 shares there-off
- Minimum investment: Rs 14,868
- Leading Managers: JM Financial, CLSA India, Nomura Financial Advisory, Axis Capital, Edelweiss Financial Services, IIFL Holdings, SBI Capital, YES Secuirities
- Listing: BSE / NSE
- Download Reliance Nippon Life IPO RHP Prospectus at this link.
Objects of the Reliance Nippon Life Asset Management IPO issue
The Issue comprises the Fresh Issue and the Offer for Sale.
a) Offer for Sale
The Promoter Selling Shareholders propose to sell an aggregate of up to 36,720,000 Equity Shares held by them. Company will not receive any proceeds from the Offer for Sale.
b) Objects of the Fresh Issue
The details of the proceeds of the Fresh Issue are summarized below:
1) Setting up new branches and relocating certain existing branches;
2) Upgrading the IT system;
3) Advertising, marketing and brand building activities;
4) Lending to our Subsidiary (Reliance AIF) for investment as continuing interest in the new AIF schemes managed by Reliance AIF;
5) Investing towards our continuing interest in new mutual fund schemes managed by them;
6) Funding inorganic growth and other strategic initiatives; and
7) Meeting expenses towards general corporate purposes.
Company Financials (reinstated-consolidated)
1) The company generated revenue of Rs 734.6 Crores for the year ended Mar-13 and Rs 1,435.8 Crores for the year ended Mar-17.
2) The company posted a profit of Rs 230.3 Crores for the year ended Mar-13 and profit of Rs 402.7 Crores for the year ended Mar-17.
3) Its FY17 EPS is Rs 6.72 and 3 years average EPS is Rs 6.85.
Company Financials (reinstated-standalone)
1) The company generated revenue of Rs 712.6 Crores for the year ended Mar-13 and Rs 1,400.4 Crores for the year ended Mar-17.
2) The company posted a profit of Rs 198.9 Crores for the year ended Mar-13 and profit of Rs 405.5 Crores for the year ended Mar-17.
3) Its FY17 EPS is Rs 6.87 and 3 years average EPS is Rs 6.68.
What are the key strengths of Reliance Nippon Life Asset Management Limited?
Here are the key strengths of the company.
1) Leading Asset Management Company with Strong Credentials to Drive Growth.
2) Multi Channel Distribution Network.
3) Comprehensive Suite of Products with Distinguished Investment Track Record.
4) Strong Focus on Processes.
5) Focus on Customer Centricity and Innovation.
6) Experienced Management Team.
What are the Strategies of Reliance Nippon Life?
Here are the key strategies of Reliance Nippon Life which it want to focus.
1) Expand company Investor Base and Focus on Retail Customers.
2) Focus on Developing company AIF Business.
3) Inorganic Growth through Strategic Acquisitions.
4) Leveraging Technology to Improve Investor Experience.
5) Expand company Overseas Operations.
6) Continue to Focus on Robust Investment Process and Product Innovation.
Reasons to invest in Reliance Nippon Life IPO
1) It posted strong revenue growth of 18% CAGR in the last 5 years.
2) It posted good profits of over 28% in the last 5 years (Standalone). Even at consolidated level, it posted profits of over 29% in the last 5 years.
3) It would be first AMC company to get listed in India which is attracting investors.
Risk Factors / Reasons not to invest in a Reliance Nippon Life IPO
1) There are outstanding proceedings against company, and certain of company Subsidiaries, Promoters, Directors and Group Companies and any adverse outcome in any of these proceedings may adversely affect company profitability and reputation and may have an adverse effect on company business, results of operations and financial condition.
2) Company future revenue and profit are largely dependent on the growth, value and composition of AUM of the schemes managed by us, which may decline.
3) Underperformance of investment products in respect of which they provide asset management services could lead to a loss of investors and reduction in AUM and adversely affect company revenue and reputation.
4) Company business has grown consistently in the recent past and such growth might not continue or might reverse.
5) The regulations that apply to the industry in which they operate may change.
6) Non-compliance with SEBI’s observations made during its periodic inspections could expose us to penalties and restrictions.
7) Competition from existing and new market participants offering investment products could reduce company market share or put downward pressure on company fees.
8) They depend on third-party distribution channels and other intermediaries, and problems with these distribution channels and intermediaries could adversely affect company business and financial performance.
9) They may not be able to attract and retain senior investment professionals and other personnel.
10) They may be required to merge, wind up or change the fundamental attributes of some of the mutual fund schemes managed by us, to comply with the recent SEBI circular dated October 6, 2017.
11) They are dependent on the Reliance Group and Nippon Life for certain aspects of company business and operations.
12) Company investment management agreement and other business commitments may generally be terminated by the counter-parties on little or no notice, making company future client and revenue base unpredictable.
13) They require a number of approvals, licenses, registrations and permits for company business.
14) They propose to utilize the Net Proceeds to undertake acquisitions for which targets have not been identified.
15) They propose to utilize a portion of the Net Proceeds towards investment as continuing interest in the new AIF schemes managed by Reliance AIF company business operations and client services are highly dependent on information technology.
16) They must reimburse mutual funds for expenses charged to them if the actual expenses exceed the limits prescribed under SEBI regulations or are not permitted under SEBI regulations, which may reduce company profitability and cause us to decrease marketing and other efforts on behalf of the funds.
17) They may not be able to detect money-laundering and other illegal or improper activities fully or on a timely basis, which could expose us to additional liability and harm company business or reputation.
18) They have entered into a number of related party transactions and may continue to enter into related party transactions, which may involve conflicts of interest, including with certain of company Promoters, Directors and key management personnel.
19) They have entered into a number of related party transactions and may continue to enter into related party transactions, which may involve conflicts of interest, including with certain of company Promoters, Directors and key management personnel.
20) Company has issued Equity Shares in the last 12 months at a price which may be lower than the Offer Price.
21) They have certain contingent liabilities that have not been provided for in company financial statements, which, if they materialize, may adversely affect company results of operations, financial condition and cash flows.
22) They have had negative net cash flows in the past and may continue to have negative cash flows in the future.
23) Nippon Life, one of company Promoters, is involved with one or more ventures which are in the same line of activity or business as that of the Company.
24) Other risk factors (Internal and external) can be viewed in the red hearing prospectus.
Recommendation / Investment strategy – Reliance Nippon Life IPO
1) On the upper price band of Rs 252 and on consolidated restated FY17 EPS of Rs 6.72, P/E ratio works out to 37.5x. Even based on last 3 years restated consolidated EPS of Rs 6.85, P/E ratio works out to 36.7x. Similarly based on standalone restated FY17 EPS the P/E ratio works out to 36.6x and 3 years restated EPS, the P/E ratio works out to be 37.7x. Means, company is asking higher price band of Rs 252 in the P/E ratio of 36.6x to 37.7x. There is no listed peers to check whether the issue price is highly priced or under priced.
2) Company revenues grew at 18% CAGR in the last 5 years. It has posted good margins of over 28% in the last 5 years. The issue price cannot be ascertained whether it under priced or overpriced. It’s the first AMC that would get listed in India which is attracting investors. Considering these positive factors, investors can invest in this IPO with 2-3 years tenure. One may or may not get listing gains.
Disclaimer: I have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.
Readers, What is your view on this first AMC IPO? Do you feel one would get listing gains?
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Reliance Nippon Life IPO – First AMC IPO – Should you invest