IDFC MF deal latest in series of M&As in the RS 38-trillion industry

More acquisitions likely going ahead, say industry experts

The acquisition of IDFC Mutual Fund (MF) by a consortium of Bandhan Financial Holdings, GIC and ChrysCapital for Rs 4,500 crore is only the latest in a series of acquisitions seen in the Rs 38-trillion domestic MF space.

Industry experts believe more existing players could get scooped up going ahead given the growth potential of the industry.  

“I think M&As will continue to take place in the MF industry. If the current AMCs can’t do economically viable business, they will go for selling their fund houses. In the last few years, there have been few M&As in the industry. There might be some mid and small size AMCs, who are not making the profits, wanting to exit from the industry,” said Himanshu Srivastava, associate director - manager research, Morningstar India.

MF AUM has grown at an annualised rate of about 20 per cent between FY16 and FY22. By FY26, the AUM is projected to grow at a compounded annual growth rate of 17 per cent to $1 trillion (Rs 75 trillion), as per RedSeer estimates. The growth will be supported by increase in penetration supported by growing influx of household savings into financial assets. Currently, India AUM-to-GDP ratio is just 17 per cent, implying that only a small portion of savings of households get invested in MFs.

In December, HSBC MF acquired L&T Investment Management for nearly Rs 3,200 crore. In May 2021, Nextbillion Technology, part of the Groww Group, had signed a definitive agreement with Indiabulls Housing Finance (IBHFL) to acquire Indiabulls AMC and Trustee Company for consideration of Rs 175 crores (including cash and cash equivalents of Rs 100 crore). In January of 2021, Sundaram AMC had announced the purchase of the asset management businesses of Principal AMC. While Sachin Bansal-owned Navi MF had bought the assets of Essel MF.

While a lot of new players are entering the MF space but growth is concentrated with a select few.

Currently, there are 43 fund houses in the country around 80 per cent of the industry assets are with the top 10 players in the industry. Meanwhile, several of the mid and small size fund houses continue to make losses or have very low profits even after several years of operations.

With new players entering the MF industry, existing players will be facing tough competition going forward, says industry participants.

However, IDFC MF is expected to remain in the top 10 as it can now leverage Bandhan Bank’s physical presence.

“It’s a big advantage if the bank is the promoter of the fund house. They get an investor base to tap into. Several of the top fund houses are backed by the banks and they have continued to grow at a rapid pace,” said a senior official from the leading fund house.

IDFC MF is currently the ninth biggest AMC in terms of assets, with an AUM of Rs 1.21 trillion during the March 2022 quarter.

IDFC AMC’s total income stood at Rs 108.4 crore in Q3FY22 as against Rs 100.7 crore in Q3FY21, a growth of 7.6 per cent. While profit after tax rose 12.8 per cent to Rs 46.1 crore.

In FY21, the fund house reported profit after tax of Rs 144 crore compared to Rs 79.4 crore in FY20.

Himanshu further adds that IDFC has been managing equity as well as debt schemes decently. I think if the current team continues to stay with the new group, there won’t be much problem in the transition. It’s still too early to comment on how the entry of Bandhan group will have the impact on the fund house, but as an analyst and investors one will be looking at the future plans of the group.