Investing in HDFC AMC IPO: A Comprehensive Analysis

Introduction

HDFC Asset Management Company (AMC) recently made a strong market debut, listing at a significant premium. This article delves into the viability of investing in the HDFC AMC Initial Public Offering (IPO), examining the company's financial performance, growth trajectory, and potential for future profitability.

Market Debut and Initial Premium

HDFC AMC began trading on the stock exchanges with an impressive market debut. The scrip listed at Rs 1739, a 58.09% premium over the issue price of Rs 1100 on the BSE. This significant premium reflects investor sentiment towards HDFC AMC and its strong financial performance within the asset management sector.

Financial Performance and Growth

HDFC AMC stands out as one of the most profitable companies in the sector. Not only does it boast a higher proportion of equity assets, but its parent, HDFC, and associated company HDFC Bank are also widely favored by investors. Another group company, HDFC Standard Life Insurance, listed last November and has seen a remarkable 68% increase from its IPO price. This trend underscores the strong investor confidence in the HDFC brand.

Is It Worth Investing?

Given HDFC AMC's robust financials and market performance, the question arises: is it worth investing in this IPO now? The answer is not straightforward and hinges on several factors:

Market Maturity and Stability: Investors are advised to wait approximately 15 to 20 days after the IPO before making a decision. During this period, the initial hype and market volatility will settle, providing a clearer picture of the stock's true valuation.

Valuation Analysis: By the time the market stabilizes, you can evaluate the P/E ratios of HDFC AMC. High P/E ratios might indicate overvaluation, while low ratios could suggest undervaluation.

Long-term Growth Potential: HDFC AMC has always been a defensive player, investing in safe avenues. This strategy has historically provided solid returns to investors. However, it is crucial to assess if this approach aligns with your long-term investment goals.

Investment Prospects and Risks

HDFC AMC has demonstrated consistent profitability, with net profits growing steadily since FY13. The company's market outperformance and strong distribution network have contributed to a Compound Annual Growth Rate (CAGR) of over 28% from FY14 to FY18. With superior return ratios and a stable management structure, HDFC AMC is expected to continue outperforming its peers.

While the IPO was priced at approximately 7.8% of the total FY18 Assets Under Management (AUM), peer companies such as Reliance Nippon AMC are trading at around 5.5% of their FY18 AUM. This suggests that HDFC AMC may command a premium over its competitors based on its strong fundamentals.

Expert Advice

A recent report by Angel Broking research team indicates that the HDFC AMC IPO is worth subscribing to. To delve deeper into the rationale behind this recommendation, you can download their detailed report at AngelBrokingResearch_HDFCAMC_IPO_19072018.pdf.

Leveraging expert insights helps in making informed decisions. Angel Broking, as a trusted financial advisor, provides comprehensive analysis, which can be particularly valuable for investors considering the HDFC AMC IPO.

In conclusion, while HDFC AMC's IPO presents a promising investment opportunity, it is crucial to conduct thorough research and consider your personal investment goals and risk tolerance before making a decision.