HDFC ASSET MANAGEMENT

COMPANY IPO
Assignment File

Submitted By :- Submitted To:-

Niharika Mathur(393) Prof. Chand Tandon
Yamini Ecavade(418) NDIM
Tanya Bansal(48)
Raj Shishodia(35)
Aniket Puri(118)

New Delhi Institute of Management

60 & 50 (B&C), Tughlakabad Institutional Area, New Delhi – 110062
Purpose and Objectives of IPO

An Initial Public Offering facilitates the company to achieve its goal of growth
and expansion by providing company ownership to the investors in exchange
of funds. It is the very first time the company offers its shares for sale to the
investors and this process has a large number of benefits for the company.
Following are some of the reasons companies go public:

Upgradation and Expansion: Primarily the aim of an IPO is to raise funds to

purchase assets or to expand the company. These assets may be bought for
several purposes, improving efficiency, increasing production, etc.

Creating of market: It is believed that publicly held companies have a higher

market value than private companies. The management rarely ever states this
as a reason for an IPO, but they hope for the value of shares to rise after an
IPO.

Retaining Employees: The company provides benefits to key employees by

providing them with share options. These may come with restrictions on the
sale of these shares, but by doing so the management hopes to retain the key
employees of the company.

Exit Strategy: The liquidity is important for short-term investors and the
creation of market where shares can be traded provides liquidity for investors
to enter and exit. The sale of shares becomes much easier for the investors
due to creation of market post IPO.

Financing Opportunities: An IPO helps companies to raise funds which may

assist the firm to pay off its debts, increase its profits in the income statement,
increase its asset base, etc giving the company a competitive advantage over
other firms.

Exposure: The process of an IPO is an excellent public relation exercise. Its

products/ services become more known among the general public.
HDFC AMC IPO:
Parameters to judge an IPO
1. Capital raised:
2. Share price appreciation/return:
3. Valuation:
4. Recruiting new customers and talent:
5. Supplier confidence:

Share price appreciation/return: A common indicator of the success of an IPO

is the appreciation in its share price from the first day of trading of the IPO to
the current trading price. This indicator is often referred to as the "offer to
current" returns which is the return as measured from the IPO price to the
current price (“offer to current”).

Mathematically share price appreciation can be computed as:

Current market price of share - Offer price of share at the time of IPO

The above equation only gives the increase in value of the share over the years
however to compare the appreciation with the offer price is more suitable
indicator.

Therefore dividing the price appreciation by the offer price, we get the effective
% increase in value of shares since their issue.

% 𝐸𝑓𝑓𝑒𝑐𝑡𝑖𝑣𝑒 𝑎𝑝𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑖𝑛 𝑠ℎ𝑎𝑟𝑒𝑠 =

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑚𝑎𝑟𝑘𝑒𝑡 𝑝𝑟𝑖𝑐𝑒 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒 − 𝑂𝑓𝑓𝑒𝑟 𝑝𝑟𝑖𝑐𝑒 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒 𝑎𝑡 𝑡ℎ𝑒 𝑡𝑖𝑚𝑒 𝑜𝑓 𝐼𝑃𝑂
𝑂𝑓𝑓𝑒𝑟 𝑝𝑟𝑖𝑐𝑒 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑎𝑡 𝑡ℎ𝑒 𝑡𝑖𝑚𝑒 𝑜𝑓 𝐼𝑃𝑂

Issue price of shares of HDFC AMC = Rs.1100/-

Current Market Price shares of HDFC AMC = Rs. 1534/-

% Appreciation in share price = 39.45%

Implication: The price of shares of HDFC AMC have appreciated 39.45% from the
time of issue i.e. in less than one year.

Higher the returns, successful the IPO

Valuation: The Asset management Companies (AMCs) are generally valued as
a percentage of their Asset Under Management (AMU).

As per July 2018, HDFC AMC IPO got a valuation of Rs 23,161 crore, which is
close to 8% of its AMU amounting Rs 3,00,548 cr. The 8% factor worked on the
positive side for HDFC AMC as AMCs usually get a valuation of approximately
5-6% of the AUM.

After the issue was open from July 25-July 27 2018, the first quarter earnings
of HDFC AMC justified its valuation and reported 25% growth in the net profit,
which was backed by 29% growth in operating revenue.

The success of an AMC is weighed according to the assets it owns and how well
it manages them. HDFC AMC has an equity-debt AUM ratio at 50:50, in
comparison to industry average of 42:58.

Moreover, HDFC AMC's customer base rose by 29% and more than 60% of its
AUM comes from retail (monthly average basis), for instance, mutual funds.
Second example could be HDFC AMC's systematic investment plans (SIP),
which are predicting and achieving high profitability. A dominant percentage of
its SIPs, over 75%, are offered for a time period more than 5 years and rest for
more than a decade.

The above points prove a bright earnings for HDFC AMC stock, and also it hit
65% higher than the issue price on NSE (Rs 1100) at Rs 1,844 (in Aug 2018).

Recruiting new customers and talent: Post IPO, awareness is created among
the public about the company enabling company to reach out to potential
customers and recruit top talent. Post IPO, HDFC AMC’s consumer base rose by
29% and more than 60% of its AUM comes from retail (monthly average basis),
for instance, mutual funds.

Supplier Confidence: The public process of an IPO moving smoothly,

encourages supplier confidence in the abilities of the IPO Company. It also
presents a net positive in terms of long term stability and growth prospects. In
the case of HDFC AMC, 98% of the offered shares were subscribed on the first
day itself. This showed the faith of investors in the company and increased
supplier confidence.
Regulatory Review

As per the review HDFC AMC is the second largest asset management company
in India and it is reported stable in the Q2 FY 2019 earnings with 15% rise in net
profit and a better asset class mix.

Their exposure is around 40 crore towards IL&FS’s preference shares. It also hit
an impairment of ₹21 crore in Q2. Management gave a good insight in
confronting the mutual fund industry nowadays. It has also witnessed good
action of pulling its liquid funds. Actually, the main thing is that their asset
under management generally ranges between ₹40k-50k crore and it is being
increased to over 75k crore in the month of October, till now. While on the
other side AMC earns a very small fees on liquid funds, market share gain
during this period and it is the testimony of HDFC AMC’s strong brand.

Capital Raised
CATEGOR NO. TOTAL TOTAL TOTAL SHARES PLEDGED
Y OF OF SHAREHOLD NO. OF NO. OF SHAREHOLDI OR OTHERWISE
SHAREDOLD ERS SHARES SHARES NG AS A % OF ENCUMBERED
RS HELD IN TOTAL NO. OF
DEMAT SHARES
FORM

A AS A % OF
SA AS A TOTAL NO. OF
% % OF SHARES
OF (A+B+ NUMBER
(A+ C) OF
B) SHARES
(A) Shareholding of Promoter and Promoter Group
(1) Indian
Individuals /
Hindu
- - - - - -
Undivided
Family

Central
Government /
- - - - - -
State
Government(s)
Bodies
- - - - - -
Corporate
Financial
Institutions / - - - - - -
Banks
Any Others 1 11,21,79,8 11,21,79,8 52.8 52.81
- -
(Specify) 30 30 1
1 11,21,79,8 11,21,79,8 52.8 52.81
Sub Total - -
30 30 1
(2) Foreign
 Individuals
(Non-Residents
Individuals / - - - - - -
Foreign
Individuals)

Bodies
- - - - - -
Corporate
Institutions - - - - - -

Qualified
- - - - - -
Foreign Investor
Any Others 1 6,36,50,615 6,36,50,61 29.9 29.96
- -
(Specify) 5 6
1 6,36,50,615 6,36,50,61 29.9 29.96
Sub Total - -
5 6
2 17,58,30,44 17,58,30,4 82.7 82.77
Total 5 45 7
shareholding of
Promoter and - -
Promoter
Group (A)

(B) Public Shareholding

(1) Institutions
12 20,74,827 20,74,827 0.98 0.98
Mutual Funds
- -
/ UTI
Financial 7 2,32,183 2,32,183 0.11 0.11
Institutions / - -
Banks
Central
Government /
- - - - - -
State
Government(s)

Venture
- - - - - -
Capital Funds

Insurance
- - - - - -
Companies
Foreign
Institutional - - - - - -
Investors
Foreign
Venture
- - - - - -
Capital
Investors
Qualified 97 82,84,035 82,84,035 3.9 3.9
Foreign - -
Investor

Nominated
investors (as
def. in Ch. XA - - - - - -
of SEBI (ICDR)
Regulations)

Market
- - - - - -
Makers
Any Others 11 23,76,349 23,76,349 1.12 1.12
- -
(Specify)
127 1,29,67,39 1,29,67,39 6.1 6.1
Sub Total - -
4 4
(2) Non-
Institutions
 Bodies
- - - - - -
Corporate
Individuals - - - - - -
Individual
shareholders
holding
nominal share
capital up to 0 - - - - - -
Rs. 1 lakh

Individual 1,97,89,20 1,97,89,19 9.32 9.32

shareholders 1 7
holding
nominal share
capital in 4,00,096 - -
excess of Rs. 1
lakh

Qualified
Foreign - - - - - -
Investor
Any Others 5,120 38,53,820 38,53,820 1.81 1.81
- -
(Specify)
4,05,216 2,36,43,02 2,36,43,01 11.1 11.13
Sub Total - -
1 7 3
4,05,343 3,66,10,41 3,66,10,41 17.2 17.23
Total Public 5 1 3
shareholding - -
(B)
4,05,345 21,24,40,8 21,24,40,8 100 100
Total (A)+(B) - -
60 56
(C) Shares
held by
Custodians
and against
which - - - - - - -
Depository
Receipts have
been issued-
m
-1 - - - - - -
-2 - - - - - -
Sub Total - - - - - -
Total 4,05,345 21,24,40,8 21,24,40,8 100
(A)+(B)+(C) 60 56

The total market capital of HDFC AMC is 32612.98 Crores and the above table
showing that how much capital is being raised by different groups including
Promoters and Promotors group and under this category it includes (1) Indian
(2) Foreign investors. Next, is the Public Share Holding by (1) Institutions and
(2) Non-Institutions and in the last by Custodians.
Shares Over/Under Subscribed
The portion of the HDFC AMC issue designated for the Qualified institutional
buyers (QIBs) was subscribed 192.26 times, while those of non-institutional
individuals over 195.15 times. Retail quota was subscribed 6.71 times.

The initial public offering by HDFC AMC received an extremely positive

response from the investors, as the issue was subscribed 83.05 times on the
last day of bidding.

The IPO received bids for 1,56,17,60,954 shares against the issue size of
1,88,04,290 shares.