Is Reliance Nippon Asset Management (Reliance mutual fund as we commonly call it) worth buying at this current price of Rs. 220?

This is a very difficult question to answer. I don’t like to give tips and so I will try to argue at a clinical level. I must add that I have Rnam in my portfolio – so to that extent I could be biased. However the number of shares is a very small number.

Currently the numbers look like this. Rnam is quoting at a price of Rs. 220. Remember the IPO (ofs) was at Rs. 252, and it got listed at Rs. 290. However, the negative impact of Adag group news brought it way below the issue price – I saw Rs. 130 too – but then recovered to about Rs. 190. The current price is of course because the market is pricing in a buy back offer at Rs. 230. So I would not take this price as an indicative price. However, the market will take some time to do a price discovery. Too early to judge the new management – but I guess it can only improve. At 222 is it risky? I guess not, but the ability to retain, and attract even better talent..etc. can only make it better.

Currently it has a PE of 23, while Hdfc amc has a pe of 29. So prima facie Rnam looks cheaper than Hdfc amc. (let me clarify I have shares of Hdfc amc also). Do remember that amc business itself is very attractive from the shareholder point of view, but Hdfc is a PnL driven company, unlike many others who chase assets. (Hdfc also chases assets, in case you are getting a wrong image, but it puts bottomline growth above top line growth). The CAGR of the NPAT for Hdfc is 18% over the past few years (let us say including up till 2021) while it would be less than 12% for rnam. The current profitability of Rnam and Hdfc justifies the PE gap. However, if I want to be in the asset management business as a shareholder, I would hold both. These seem to be the only 2 pure amc plays – and have no other business. Icici bank, Kotak bank, SBI, Birla Capital – all are proxy to their amc business, but are not pure fund management plays. In case you want to play Hdfc asset management and life insurance, you need to buy separate companies.

Rnam will now be able to attract a lot of talent, AND a lot of funds. Many investors kept out of RNAM – and did not do a fair allocation based on performance. That bias will go. Big corporate money can now come in. Surely the treasury of Reliance Industries will start looking at it again. Rnam (Nippon asset management?) will be the only listed amc with just a foreign promoter. I am sure Nippon will look for an Indian partner – but may not offer too much stake. So many Indian promoters looking to participate in this business could join as a co promoter.

Nippon could ask for growth – at a fair price – and you might see a completely different growth strategy. Currently the whole process of name change etc. will take at least 6 months..and then people will realize that it is a good mnc which can be trusted.

watch this space. I am not saying anything. I could be a buyer, seller, going short….so please do not get carried away by what I say. I already have a position in BOTH….and maybe I will buy more…and maybe I will not. Caveat Emptor. BTw I am a vendor too….oops!!!

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  1. Thanks sir for your insightful views.

    Couls you share more light on investing in AMC businesses. I tried reading a lot of research reports but very barely found anythinf on this topic.

  2. The ‘cleansing’ is yet to start by new management. We know what happened in Yes bank , DHFL NBFC and its DHFL MF story. It would take few years to purge all worms and pests if new management is honest. I still don’t have confidence to invest either in stock or in MFs of this AMC

  3. Krish I do not know your background, but if you get confused between a bank story, an nbfc and an amc story I don’t blame you for not having confdence in stock, mf or this amc.

  4. Usual story with Banks – hidden NPAs, NBFC – over leverage and AMCs – Over exposure to own group of companies.

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