UTI AMC stake loses sheen for T Rowe Price

Value of its investment up 1% yearly since Jan 2010, as fund house lags peers

Global asset manager T Rowe Price, which manages over $1 trillion globally, has failed to replicate its success in India, despite the exponential growth in the domestic asset management sector.

Data sourced from its annual reports show the carrying value of its investment in UTI Asset Management Company (AMC) has appreciated at a measly one per cent, compounded annually, since January 20, 2010, when it bought a 26 per cent strategic stake in the domestic asset manager.

When it did so for $142 million, UTI AMC was the fourth largest mutual fund house in the country in terms of assets under management (AUM). It had a respectable 10 per cent market share. Today, it is sixth largest in terms of AUM; Birla Sun Life AMC and SBI AMC have overtaken it.

For the record, T Rowe Price — single largest shareholder in UTI AMC — says it remains optimistic. “We have always said our stake in UTI AMC is part of a long-term strategy to participate in India’s asset management industry. The investment decision was not driven by any expected shortterm return on investment. We continue to believe in the long-term opportunity in the Indian asset management industry and in UTI’s prospects as a leader in that industry,” Brian Lewbart, spokesperson of T Rowe Price, told Business Standard.

Adding: “Given comparable market valuations and the fact that the company is seeking an IPO, valuations could be significantly higher.”

In terms of market share, UTI AMC now accounts for only six per cent of the total AUM of the sector. It also lags considerably in distribution reach. Data collated by Ambit Capital shows even smaller-size AMCs have more distribution channels. For instance, a relatively new entrant like Motilal AMC has a little over 2,000 distribution points (including own branches and those of sponsor banks) compared to a

mere 149 with UTI AMC. This could be why its AUM saw no more than a 12 per cent compounded annual growth rate between 2011-12 and 2016-17; the sectoral average was a 24.5 per cent rate. And, UTI AMC scores low in terms of average ticket-size of its equity AUM. While the industry average is ~140,000, its is ~30,000.

Ambit analysts in the same research note say UTI AMC has higher operating costs than peers. Operating expenditure as a proportion of its AUM is 0.29 per cent, among the highest among large-sized AMCs. Analysts say this relative inefficiency is due to some legacy labour union issues that led to higher employee costs.

The sharp slide in the rupee's value has been another factor that has weighed down the value of T Rowe Price’s investment. In 2010, the rupee was 45.9 against the dollar. Today, the rupee is trading at 68.58 against the dollar, a depreciation of 33 per cent over eight and a half years. A depreciating rupee has an adverse impact on dollar

returns of foreign investors.

While T Rowe Price hopes that once the Initial Public Offer (IPO) of equity at UTI AMC is out, the latter will return on investors’ radar. However, despite efforts to go public, the IPO has remained in abeyance amid a feud between various stakeholders, most of them public sector undertakings (PSUs).

Recently, Life Insurance Corporation (LIC) and State Bank of India (SBI) wrote to the board of UTI MF, asking it to allow the term of Leo Puri, the current managing director and chief executive, to expire and to appoint a non-executive chairman from among the “independent directors”.

The so-called independent directors are nominees of the PSU financial institutions that, together, own 73 per cent of UTI AMC’s shares. There are two nominees each from LIC and SBI and one from Punjab National Bank. T Rowe Price, on the other hand, has expressed support for extending Puri’s term.