I think that’s number I heard in the previous AMC acquisitions in India in last few years. May be you can add numbers about AMC transactions done by IDFC MF and L&T in the recent past.
If fund is generating 25 bps net profit per year, then 5% rate gives PE ratio of 20 for such a business. That might be rough calculation driving that number. (AUM:10,000, Profit:25, Stock price:500)
As you have rightly said valuation will depend on the product mix which drives profit margin to AUM ratio. That ratio will also depend on growing competition in the MF sector, regulator imposing limits on fees, rise of passive funds and general rising awareness and savvy from investors. I have seen index funds with expense ratio of 6-30 bps for essentially same product such as NIFTY 50 Index fund. Not sure if such difference will continue in the future but HDFC MF is charging on the higher end of such ratio. With new fund houses such as Zerodha and Reliance Jio there will definitely pressure on index fund TER. There are some new active fund managers as well. Parag Parikh Fund house has garnered good AUM with lower TER and better performance than HDFC MF.
Then as the equity market gets more efficient active funds might start generating lesser alpha to justify higher fees so product mix could change more towards passive/index funds. There could only be 2-4 viable player if large part of the AUM will starts going passive route.
So there are many ways how AMC business will pan out over next 5-10 years. So in that light HDFC MF valuation seems stretched.
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