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Yet again, Reliance Capital Asset Management has managed to secure a high valuation for its mutual fund arm through Thursday's stake sale to Nippon Life Insurance. At Rs 1,450 crore for a 26 per cent stake, the deal values Reliance Mutual Fund at 6.8 per cent of its assets under management (as of December 2011 quarter). This is at a steep premium to deals sewn up by other fund houses in recent times, which have gone through at 1.5-4 per cent of assets.
It must be noted that Reliance Capital had, in end 2007, sold a minority 5-per cent stake to Eton Park at a stiff valuation of 12.9 per cent of assets managed. That was weeks before the 2008 market crash; Reliance was also the largest asset management company then. It is now ranked second among domestic fund houses in terms of assets managed.
Recent deals more modest
None of the deals in the last couple of years, however, have commanded similar valuations. Volatile market conditions which have reduced equity assets and the reduced profitability of asset managers due to new regulations from SEBI, have cut back valuations of fund houses.
Goldman Sachs bought Benchmark Mutual at Rs 130.5 crore, valuing the fund at 4.3 per cent of its assets. L&T Finance bought DBS Chola's mutual fund business at a modest 1.5 per cent of assets.
The proportion of equity versus debt assets managed, the profitability of the asset management company, retail folios and distribution network are typically some of the factors that are considered in valuation of a fund house.
On this count, despite being only the second largest AMC, next to HDFC Asset Management, Reliance AMC managed higher profits than HDFC AMC last fiscal, with Rs 261 crore in net profits, versus Rs 242 crore for HDFC.
However, Reliance Mutual fund does not appear to have a very high proportion of equity assets. Equity accounted for roughly a third of total assets managed by Reliance Mutual for the December 2011 quarter.
Its assets under management too have fallen 19 per cent over year ago. HDFC Mutual Fund on the other hand, has managed to add about 1 per cent to its assets through inflows, poor market conditions notwithstanding.
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