DSP group plans IPO to monetise stake in AMC, may rope in new partner

The DSP Group, among the oldest financial services firms in India, may be looking to list its asset management company (AMC) on the bourses and subsequently rope in a foreign strategic partner, said people in the know.

DSP BlackRock is one of the top 10 fund houses in the country and recently announced the exit of its joint venture partner BlackRock in the AMC. Under an agreement announced in May, the DSP Group will buy the 40 per cent stake held by BlackRock, subject to regulatory approvals.

“The management has informed the board they may want to take the AMC public,” said a person familiar with the matter. “The IPO will help DSP recover a portion of the money it has paid to BlackRock, after which it will bring in a foreign partner.”

He added the discussions were preliminary and the AMC had not zeroed in on a timeframe to either list or partner a new entity. 

DSP may look to offload 15-20 per cent stake through the IPO and sell another 25-35 per cent stake to its new partner.

“It is already talking to a few large American players for a possible partnership, but a deal is unlikely to materialise any time soon,” added another person, on the condition of anonymity.

While the AMC has the option to rope in a partner before its IPO, experts said that it would monetarily be more prudent if it chose to list first and then bring in a partner.

An IPO in the next few months would make sense considering the surge in the industry’s assets over the past few years. 

The sector has clocked a compound annual growth rate of 25-30 per cent in the past three years. Profits of large-sized fund houses are expected to grow at a fast clip as assets swell and fixed costs remain the same, said, experts. The success of the recent listings of HDFC Mutual Fund and Reliance MF may also augur well for any other large-sized AMC that plans to go public.

DSP denied plans to list the AMC or rope in a strategic partner. In a recent interview to Business Standard, chief executive officer Kalpen Parekh had said the AMC did not have any immediate plans to bring in a strategic investor. 

“By taking 100 per cent ownership, the shareholder (DSP) has shown confidence in running the business on its own… We have the right team, funds, track record and experience to aspire for scale and a more dominant positioning,” he said.

In 1995, DSP entered into a JV with Merrill Lynch to form DSP Merrill Lynch, with a presence in investment banking, broking, and asset management.

It exited its stake in the broking and investment banking JVs but retained the mutual fund stake. After BlackRock acquired Merrill Lynch's asset management business, the fund house was renamed DSP BlackRock Investment Managers in 2008.

The fund house has seen a spate of exits in the past few months, quite a few of whom had spent more than a decade with the firm, said people in the know. President and chief information officer S Naganath, for instance, quit in May last year after 15 years with the firm. Dhawal Dalal, another old hand, quit in July 2016.

DSP BlackRock managed assets worth Rs 860 billion, as of March 2018. The fund house's equity assets grew 28 per cent in the last financial year to Rs 317 billion, lower than the industry average of 34 per cent. Overall assets, however, grew 26 per cent — higher than the industry’s 22 per cent growth.

Mutual funds have garnered record assets in the past year, with an average monthly inflow of Rs 40-60 billion through systematic investment plans. The industry has doubled its assets in the past three years, with overall AUM totalling over Rs 21 trillion as of March 31, 2018.