One of the biggest fund houses in India is hitting the IPO market expecting to price themselves at about 4% of the AUM as a valuation. Maybe more about 5% if the bidding happens at the higher end.

History:

Reliance mutual fund was one mutual fund which did not have a collaborator till 2012. It was a big homegrown fund house with a few good schemes which had attracted investor interest. In 2012 it sold a part of its stake to Nippon Life insurance – in what was considered to be a big deal at that point in time. Reliance Nippon Asset Management is now selling its in the Rs 247-252 price band. The IPO size would be around 10 per cent of the post issue paid-up capital of the company. The minimum bid lot is of 59 equity shares and bids may be made in multiples of 59 equity shares thereafter. By keeping the size of the issue small the ADAG is doing a smart job of creating post issue demand. At the issue itself one can expect oversubscription – remember by today’s standards the issue size is small, and the mood is euphoric. This will give the ADAG to flaunt high valuation and do a lot of small private placements at higher valuation. Or same valuation but with more assets – thus realising more money for he group. Smart move.

Human memory is smart so I do not think people are going to worry about the ADAG track record in IPO pricing. So the issue will be a hit.

Yesterday HNI investor Shyam Sekhar spoke about how this is a great time to do a dilution in the Asset management business (it was in ET). Another big fund manager also spoke about IPO pricing….remember?

What is going well for RNAM?

• it has a fairly competent fund management team
• it has an extremely well knit and well spread out sales team headed by competent team
• they have created a great name with their training programs and I know of IFA who swear by it
• even with so much negative publicity for ADAG they have retained the AUM, and grown it
• they have a big technology budget and that will help them score over their rivals who may not have that tech spend

To quote Motilal Oswal / Raamdeo Agrawal the force behind Motilal Oswal wealth management team…

Every time we buy a stock we SHOULD examine it through QGLP methodology where

• ‘Q’uality i.e. quality of the business and management,
• ‘G’rowth i.e. growth in earnings and sustained RoE,
• ‘L’ongevity i.e. longevity of the competitive advantage or economic moat of the business
• ‘P’rice i.e. our approach of buying a good business for a fair price rather than buying a fair business for a good price.