How to Value a Asset Management Company?

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(1/9)
Distribution:-

One of the the most important parameters for a AMC company.

A well-diversified distribution network is very important

HDFC AMC here shows the important channels of distribution

(2/9)
AUM:-

Assets Under Management forms the basis of Valuation

There are 3 types of schemes:-

1. Money Market
2. Debt
3. Equity schemes

(3/9)
Money Market Schemes:-

These Schemes manage money in short term products such a T-Bills,CP and CD.

The margins on these schemes are extremely low i.e 8-13 bps.

Not very profitable for the AMC.

(4/9)
Debt Schemes:-

These schemes manage money across various categories of debt products long and short term

They are somewhat more profitable than the market schemes.

The margins here are at 20-30bps

(5/9)
Equity Schemes:-

These schemes manage money across the equity markets

These are the most profitable products for the company

The margins vary from 80-100 bps

(6/9)
How to value the AMC Company?

Value AMC company as % of the equity AUM.

Eg-

HDFC AMC had an average Equity AUM of 186,100cr

The valuation is nearly 37% of Equity AUM.

Generally, AMC companies are available at high single digits when valued at equity AUM

(7/9)
The other way is to use Blended AUM

Weighted Average AUM.

Each AUM category can be multiplied by the % margins to calculate the blended weighted average of the AUM.

Valuation then needs to be calculated on this AUM.

(8/9)
Conclusion:-

1. AMC business is valued as a % of AUM
2. The Indian AMC penetration is very very low and will only grow in the coming decade.
3. However the stocks have already run up on good growth anticipation

(9/9)

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