HDFC AMC’s OFS: Falling In Line

Hdfc Amc: Overweighted Valuations But Long Terms Prospects Bright

HDFC Asset Management Company (HDFC AMC), the mutual fund business jointly promoted by Housing Development Finance Corporation and Standard Life Investments, will return to markets after 18 months since its initial public offerings.

This time it’s overseas promoter Standard Life has proposed to sell up to 47.5 lakh equity shares, representing 2.23% stake of HDFC AMC through offer-for-sale at the floor price of Rs.3,170 per share, which offers a discount of 7.8% to its Tuesday closing price at Rs.3,441.45 apiece on the BSE.

However, the OFS commands a premium of 13% when compared with its listing price.
In July 2018, HDFC AMC had hit the capital markets to raise an estimated Rs.2,800 crore through its IPO.

Meanwhile, the Standard Life has an option to additionally sell up to 38.5 lakh equity shares, amounting to 1.81% stake of the fund house.

The OFS price would enable the promoter to raise Rs.1,505.75 crore.

The stake-sale will be conducted on the BSE and NSE on December 4 for institutional investors and December 5 for retail investors.

The share-sale is being undertaken by the promoter for achieving the minimum public shareholding in the company as prescribed under markets regulator Sebi’s norm.

As of September this year, Standard Life held a 29.94% stake in the mutual fund house, while HDFC owned 52.76%.
DSP Merrill Lynch is the broker for Standard Life.

Asset Management Companies are in great demand lately following the demonetization process that triggered the digitization of financial services and investors returning to risky assets due to unfavorable interest rate scenarios in the country.

Mutual Fund Industry managed to record strong fund inflow in Systematic Investment Plans or SIP which have become preferred investor choice.

These products are designed to suit long-term investment horizons.

AMCs are expected to perform better given the stringent regulatory scenarios, especially towards capital markets, and the under-penetrated markets for such products offer huge potential.

What does OFS mean for shareholders? Should investors apply?
We believe that the long term business fundamentals for Hdfc Life continue to be strong and looking at the future runaway here investors can look forward to huge wealth creation here.

The OFS provides a good opportunity to long term investors to buy into this stock at lower levels which we believe gives them a window of opportunity for a strong portfolio choice

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