DNA : Daily News & Analysis

Reliance Capital Asset Management, the second-largest mutual fund player in the country, in terms of assets under management (AUM), on Thursday entered into memorandum of understanding (MoU) with Nippon Life Insurance to sell 26% stake for `1,450 crore. The deal which is the largest investment in any Indian asset management company till date, values the fund house at `5,600 crore, or close to 6.8% of its latest average AUM of `82,306 crore (as of December end 2011). The deal is at a premium to last few deals in the mutual fund space, which were struck at 1.5% to 5.7% of the average AUM. Experts believe that though the valuations may appear to be high at this point of time, the deal may be worth the price for Nippon Life given the fact that Reliance is the one of the most profitable AMCs in India. "The valuations seem to be reasonable given their wide product range, large presence and consistent performance over the last few years. Though its performance and its AUM have suffered in recent times, the company has strong brand value and the chances of its performance going up in the coming times are quite high," said the CEO of a domestic mutual fund house, not willing to be quoted. The company, which has close to 13% market share, had reported a consolidated profit before tax (PBT) of `294.3 crore during the last fiscal and its half-yearly PBT this fiscal stands at `136.5 crore. The higher valuation may also be attributed to its large retail presence and high proportion of equity portfolio where the company makes higher margins. It had close to 73 lakh investor folios, including more than 20 lakh systematic plans (SIP & STP) accounts, as at end of September quarter, which is the highest in the industry. Also the company had close to 43 schemes with 21 of them as equity funds with `31,500 crore of equity AUM. The deal was expected since the last 3-4 months since Nippon Life picked up 26% stake in Reliance Life for `3,062 crore.