UTI AMC shares jumped 15% today. Here's why

Shares of UTI AMC climbed over 15 per cent in Monday's trade after a media report suggested that the Tata Group was in final talks to buy majority stake in UTI AMC from state-owned companies.

The ET report citing officials close to the development said internal approvals are in and Tata has received in-principal nod from the other big investor in the AMC - global investment management firm T Rowe Price Group, which holds around 23 per cent.

Three banks namely Bank of Baroda (9.98 per cent), State Bank of India (9.98 per cent) and PNB (15.22 per cent) together accounted for 35.17 per cent stake in the AMC as of September 30. LIC accounts for owned another 9.98 per cent stake in the asset management company. Together these four state-run firms owned 45.16 per cent stake in UTI AMC at the end of September quarter.

The scrip rose 15.45 per cent to hit a high of Rs 890.30 on BSE. With this, the scrip has risen 50 per cent from June low of Rs 595 level.

A final agreement on the deal valuation is being sought, the ET report quoted sources as saying. The combined company, if the merger is approved and Tata AMC and UTI AMC are united, would rank as India's fourth-largest asset management, the report said.

Earlier this month, Kotak Institutional Equities initiated coverage on UTI AMC with a buy rating calling it self-help candidate.

"We believe UTI offers the best risk-reward in the space, given the healthy fund performance on 3Y/5Y, strong reach (high B-30 share) and maximum visibility among peers to control costs, given the already high base," it said while suggesting a target of Rs 940 on the stock.

Kotak said UTI’s longstanding brand in mutual fund industry and deep reach are some of its core strengths. UTI’s 8 per cent market share in underpenetrated B-30 cities against the overall market share of 6 per cent. It said the 40 per cent B-30 share in its equity book reflect its strong foothold in these regions.

"The company has lost equity market share (off high base) during FY2014-20, which along with more inflexible cost structure has led to underperformance on core earnings growth versus peers," it said.

Kotak values UTI at 18 times December 2024E EPS. It expects 10 per cent core earnings CAGR over FY2023-25E, led by 15 per cent average AUM growth driving 7 per cent revenue growth and decline in core cost-income ratio.