Reblog: Reliance Nippon Life IPO review

Reliance Nippon Life Asset Management Ltd. (RNL) (erstwhile known as Reliance Capital Asset Management Ltd.) is one of the largest asset management companies in India, managing total AUM of Rs. 3,625.50 billion as of June 30, 2017. RNL is involved in managing (i) mutual funds (including ETFs); (ii) managed accounts, including portfolio management services, alternative investment funds (“AIFs”) and pension funds; and (iii) offshore funds and advisory mandates. It is ranked the third largest asset management company, in terms of mutual fund quarterly average AUM (“QAAUM”) with a market share of 11.4%, as of June 30, 2017, according to ICRA. RNL started mutual fund operations in 1995 as the asset manager for Reliance Mutual Fund, managed QAAUM of Rs. 2,229.64 billion and 7.01 million investor folios, as of June 30, 2017. It managed 55 open-ended mutual fund schemes including 16 ETFs and 174 closed-ended schemes for Reliance Mutual Fund as of June 30, 2017. RNL has a pan-India network of 171 branches and approximately 58,000 distributors including banks, financial institutions, national distributors and independent financial advisors (“IFAs”), as of June 30, 2017.

As part of managed accounts business, RNL provides portfolio management services to high net worth individuals and institutional investors including the Employees’ Provident Fund Organisation (“EPFO”) and Coal Mines Provident Fund Organisation (“CMPFO”). It’s Subsidiary, Reliance AIF Management Company Limited (“Reliance AIF”) manages two alternative investment funds, which are privately pooled investment vehicles registered with SEBI. Further, Reliance Capital Pension Fund Limited, one of Group Companies, received a certificate of commencement of business as a pension fund manager from the Pension Fund Regulatory andDevelopment Authority (“PFRDA”) in 2009 and manages pension assets under the National Pension System (“NPS”). As of June 30, 2017, it managed total AUM of Rs. 1,503.93 billion as part of managed accounts business. The company also manages offshore funds through subsidiaries in Singapore and Mauritius and has a representative office in Dubai, which enables it to cater to investors across Asia, Middle East, UK, US, and Europe. As of June 30, 2017, it managed total AUM of Rs. 22.07 billion as part of offshore fund management portfolio. RNL also acts as the advisor for India focused equity and fixed income funds in Japan and South Korea. Further, as of June 30, 2017, it managed Rs. 52.77 billion of international advisory mandates.

RNL is 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, stockbroking, wealth management services and 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. Its co-promoter, Nippon Life Insurance Company 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.

To part finance relocating of existing branches, new branches, IT system up-gradation, brand building activities, lending to subsidiaries, investing in new mutual fund schemes and other corpus fund needs, RNL is coming out with a maiden IPO of 61200000 equity share of Rs. 10 each via book building route with a price band of Rs. 247 to Rs. 252 per share to mobilize Rs. 1511.64 crore to Rs. 1542.24 crore (based on lower and upper price bands). The issue consists of fresh equity issue of 24480000 shares and offer for sale of 36720000 shares. Issue constitutes 10% of the paid-up equity capital of the company post issue. The issue opens for subscription on 25.10.17 and will close on 27.10.17. Minimum application is to be made for 59 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. BRLMs to this issue are JM Financial Institutional Securities Ltd., CLSA India Pvt. Ltd., Nomura Financial Advisory and Securities (India) Pvt. Ltd., Axis Capital Ltd., Edelweiss Financial Services Ltd., IIFL Holdings Ltd., SBI Capital Markets Ltd. and Yes Securities (India) Ltd. Karvy Computershare Pvt. Ltd. is the registrar to the issue. Having raised initial equity at par from March 1995 to September 2007, it raised further equity in the price range of Rs. 2000 to Rs. 9823.53 per share between December 2007 and March 2011. It has also issued 760000 bonus shares in May 2012 and 576000000 bonus shares in August 2017. Post issue RNL’s current paid up equity capital of Rs. 587.52 crore will stand enhanced to Rs. 612.00 crore. Reliance and Nippon each will continue to hold around 42.5% stake in post issue equity.

On the performance front, RNL has (on a consolidated basis) posted revenues and net profits of Rs. 778.77 cr. / Rs. 270.68 cr. (FY14), Rs.955.12 cr. / Rs. 354.49 cr. (FY15), Rs. 1313.82 cr. / Rs. 396.44 cr. (FY16) and Rs. 1435.89 cr. / Rs. 402.76 cr. For Q1 of current fiscal, it has earned a net profit of Rs. 87.79 crore on total revenue of Rs. 394.80 crore. From fiscal 2013 to 2017, RNL’s total revenues and profit after tax increased by a compound annual growth rate of 18.2% and 15.0%, respectively. For last three fiscals, it has reported an average EPS of Rs. 6.72 and RoNW of 22% on an equity capital of Rs. 11.52 crore. If we annualize latest earnings and attribute on fully diluted equity post issue, then asking price is at a P/E of around 43.9. Thus the issue is fully priced. It has no peers to compare with and hence is a first mover in the segment to get listed.

As per the information shared by the management, it is managing and advising on assets over Rs. 380000 crore as on 31.08.17. First Indian AMC to go public. Currently, it is getting around Rs. 510 crore per month under SIP from around 18.6 lakh account holders. RNL is second largest ETF player as of June 30, 2017 with 25.4 % market share.

On BRLMs front, eight merchant bankers associated with the offer have collectively handled 48 public offers in the past three years, out of which 11 offers closed below the offer price on listing date.

Conclusion: Investment in fully priced issue may be considered for medium to long term as it is a first mover and likely to create fancy post listing.

 The original review is written by Dilip Davda, appears on and is available here.
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