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Tata Asset Management is considering buying a stake in UTI AMC

TATA AMC is Planning to Buy 45% Stake in UTI AMC

Tata Asset Management Company (AMC) is planning to buy a 45% stake in UTI asset management company from four state-owned financial entities.

If the deal goes through and Tata AMC and UTI AMC are eventually merged, then the combined entity would be the fourth largest AMC in India.

While the official communication is yet to come out, the market seems to have reacted to the news pushing the UTI stock up by 18%.

The stake in question is together owned by the following prominent entities Punjab National Bank (PNB), Life Insurance Corporation (LIC), State Bank of India (SBI) and Bank of Baroda (BoB). These are the sponsors of UTI AMC.

The other prominent investor in the AMC is T Rowe Price Group Inc which, through its wholly owned subsidiary T Rowe Price International, held a 22.97% stake as of June 30, 2022.

In addition, Tata Sons and Tata Investment Corporation own 68% and 32% stakes in Tata AMC.

UTI AMC’s current market cap is Rs 9,520 Cr, as of last Friday. As of June 2022, the asset under management of UTI AMC was Rs 2.24 Lakh Cr, and TATA AMC was Rs 88,367 Cr, respectively.

For the last financial year, 2022, UTI AMC posted a net profit of Rs 534 Cr on a revenue of Rs 1,319 Cr. Tata AMC has reported revenue of Rs 342 Cr and a net profit of Rs 103 Cr in FY22.

In December 2019, the Securities and Exchange Board of India (SEBI) directed LIC, SBI and BOB to reduce their stakes in UTI AMC by December 2020. These three public sector financial institutions held 18.24% each back then.

Sebi’s cross-holding norms for mutual funds do not allow the sponsor of one AMC to hold more than 10% in another. So subsequently, these three firms reduced their stakes below 10% during the IPO in October 2020.

Currently, the asset management business of the tata group is tiny, and it must scale up to be a significant player in this segment. Hence, if this move happens, it will add value to both AMCs.

The mutual fund industry has recently seen multiple merger and acquisition deals. First, HSBC Mutual Fund’s acquisition of L&T Mutual Fund. After that, the merger of BNP Paribas and Baroda Mutual Fund, and the last one was IDFC Mutual Fund which was acquired by a consortium led by Bandhan Financial Holding.

How does that impact your wealth?

If the deal goes through between the TATA AMC and UTI AMC, it will be a win-win situation for both companies. The share price of UTI AMC was up by 18% today (16 August 2022). The total exposure of equity mutual funds to UTI asset management company stood at 1079 Cr as of July 2022. As of now, based on our assessments, this deal shouldn’t impact investors negatively.