IDFC board okays proposal to divest MF business

Mumbai: The board of IDFC has approved a proposal to divest its mutual fund business, authorising the relevant panels to take the necessary steps, including the appointment of an investment banker.

In 2018, IDFC was in advanced talks with Avendus to sell the business, but the negotiations eventually failed on reports that the IDFC board was seeking high valuations. After that, there were talks of the IDFC board conducting an IPO for the mutual fund business, but that too did not see the light of the day.

Existing shareholders have questioned the IDFC board on the slow progress of value unlocking, with veteran investor Madhusudan Kela saying it is frustrating to be a shareholder of the company and asking the management to provide a timeline to shareholders for sale of the asset management business. Industry sources say this has accelerated the sale of the mutual fund business now.

IDFC MF ranks No. 9 in terms of overall assets – at ₹1.28 lakh crore. Of this, equity assets account for ₹27,000 crore with the balance in debt and hybrid schemes. It has a strong fund management team in both equities and debt space headed by Anoop Bhaskar and Suyash Choudhury.

As per industry sources, the fund house is looking for a valuation of ₹6,000-7,000 crore for its mutual fund business. IDFC AMC is a profitable company and recorded a profit after tax of ₹144 crore for the year ended March 2021, a rise of 81% over the previous year and the best profit in its history. HDFC AMC recorded a PAT of ₹1,376 crore in the same period.

Given the expected growth in the Indian MF industry, several new domestic fintech players are looking to enter the space, while foreign players are looking to expand their reach.

“The business is strong and the team is good and will interest foreign players as well as new-age fintech players. It does not make much sense for an existing industry player to take over the AMC as there will be a scheme overlap and as per SEBI regulations, you could have only one scheme in each category,” said the CEO at a domestic fund house.

Competition in the industry is increasing and margins are on the decline even for established players due to flows into passive funds where margins are low.

The mutual fund Industry’s AUM has grown from ₹15.18 lakh crore as on July 31, 2016 to ₹36.09 lakh crore as on August 31, 2021. Analysts at ICICI Securities estimate the Indian MF AUM to grow at 15% CAGR between 2021 and 2030 to touch ₹100 lakh crore. Competition in the mutual fund business is getting intense with several new and fintech players like Zerodha, Samco, Navi and NJ entering the fray with their schemes soon.