Shriram AMC - Waking up after a hibernation. Mcap 300cr

Stock Opportunities Untested - but worth a good look
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Shriram AMC earlier was privately owned by promoters of Shriram Finance. Now post merger within the group, Shriram AMC is step down subsidiary of Shriram Finance. (Shriram AMC is held by Shriram Credit company limited which was owned by Shriram Capital. Shriram Capital was merged with the listed Shriram Finance in 2022-23. Shriram Capital was earlier held privately by the promoters of Shriram Finance)

The main intent of merger of Shriram Transport with SCUF and Shriram Capital was to expand its offerings, become full fledged retail NBFC and to cross sell. Check below image from the presentation dated 13.12.2021 pg 6. Shriram Finance presentation

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Now lets go through the organizational changes post 2022:

  1. Feb 2022 - Mission1 PE acquired 23% stake in Shriram AMC via warrants. Converted full warrants in Nov 2023.
  2. Aug 2022 - Appointment of new CIO Mr. Deepak Ramaraju. Was FM at Sanlam group (promoter grp) managed India fund earlier.
  3. Feb 2023 - Appointment of new MD Mr. Kartik Jain.
  4. Sep 2023 - Launch of new NFO - Shriram Multi Asset fund. Collected 90crs of AUM.
  5. Sep 2023 - Appointment of new Chief Business Officer - Mr. Chetan Doshi
  6. Nov 2023 - Shriram Finance MD in a interview on Nov 7th informed Bloomberg that they are restarting the AMC venture and willing to grow for the low income grp population. He also informed that they are willing to launch more schemes once they have research and operational capabilities.
  7. April 2023 - till date - Multiple hirings. They had just 8 employees till Sep 22. Employee base has increased from 8 in Sep 2022 to 17 in March 2023 to 28 in Sep 2023 to 51 in Feb 2024 (Source - EPFO website data). Employee additions in a service led business is a good trigger.
  8. Oct 2023 - till date - Equity AUM till Sep 2023 was less than 200crs. Post Multi Asset NFO E-AUM increased to 290crs in Nov 2023. Equity AUM as of Feb 2024 stands at 340crs (Source - Fund factsheets). Liquid AUM rose from 74crs in Oct 2023 to 103crs in Feb 2024.
  9. March 2024 - Shareholder approval to get into different business as per SEBI act. Special resolution Shriram AMC

Remember promoters tried to revive the AMC biz in 2013-14 also but didn’t suceed. This is their 2nd attempt. However, now Shriram Finance is serious since its their subsidiary now. Imp links on what Shriram Finance’ MD Mr. Umesh Revankar says about AMC biz:

Linkedin posts on various hiring -

On new distributor additions -

Now since you have gone through various organizational changes, let me summarize and share my thoughts:
Summary:

  • Focus from Shriram Finance since its now their step down subsidiary.
  • Management level changes (New MD, CIO, CBO).
  • New Employee hirings (from 8 employees in Sep 2022 to 51 employees now) (Source - EPFO website data).
  • New Distributors getting added (earlier they were not focusing on this part) (Source - Linkedin postings)
  • Fresh capital funding (They got capital from Mission1 stake purchase and preference share issuance (now converted to Equity shares))
  • New fund offering

Thesis and crystal ball gazing:

  • AMC biz at small 300crs mcap.
  • They have just re-started. Will take 1-3 years to scale-up AUM (need to show fund performance (hardly any alpha generated by funds yet)). Profitability is 3-4 years away since in AMC biz expenses are upfront. They have the new website also now. They are sharing office space with Shriram Finance now (AR FY23 - In FY23 they signed 5 year arrangement with Shriram Finance for “Infrastructure sharing including lease agreement for branch offices”).
  • Service led biz hiring a lot of employees is itself a good trigger. All of them will start contributing now.
  • They had few distributors - Shriram MF is focusing on onboarding and meeting them now.
  • Parent Shriram has huge cross sell opportunity. Shriram Finance has 3000 branches (think of some branches contributing MF AUMs going forward which till now was hardly anything). Shriram’s has Fixed deposit AUM base of 20k crs! which they can cross sell.
  • Shriram One app - Shriram has an all-in-one app. They still haven’t incorporated MF biz in the app since currently they are in initital stages of developement and the app is just 6 months old. Shriram MF didn’t even have their own app (still doesn’t).
  • AMC based out of Mumbai - AMC is a networking biz and Mumbai is the hub of AMC biz. Shriram AMC is based out of Mumbai which will help them get relevant employees, connections, etc.
  • Alteration in MOA - To carry out various different business as per SEBI act. Board approval is still pending Special resolution Shriram AMC

Issues:

  • Lossess since 2013. Will take 1-3 years to scale-up AUM. Profitability is 3-4 years away since in AMC biz expenses are upfront.
  • Currently only 61lacs of AMC service income is derived for full year.
  • What if Shriram Finance stops focusing on Shriram AMC. Same happened in 2013-14 also when they tried to revamp the biz (But earlier was owned privately by the promoters of Shriram Finance and now is a step down subsidiary of Shriram Finance).
  • Currently its at 300cr mcap. AMC biz trades at 10-15% Equity AUM (meaning 2000-3000cr AUM is already factored in this mcap). However, buying a AMC biz at 300cr mcap will look cheap too with parent having good cross selling opportunity.
  • AMC industry is highly competetive industry.
  • Illiquid stock. Hardly 2k daily volumes. In circuit to circuit of 5% band.
  • Hope trade/investment works? Never worked for me.

Your different views accepted.
Disclosure: Invested. Not a registered RIA. Not a buy/sell recommendation. Consult your Investment Advisor.

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Dear @rp6 thanks for sharing this note! Really helpful. Could you shed some more light on what went wrong in 2013-14. As you have pointed out, earlier it was not a subsidiary but privately owned and now that has changed. But is there some discussion around what went wrong back then, and why it wouldn’t again.

Thanks so much!

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@Ajitesh_Garg Thanks for that.

Had found an article on google search
https://www.valueresearchonline.com/stories/23232/shriram-amc-gears-up-for-a-second-innings

This time they are taking steps in right direction:

  • Meeting distributors (Earlier major distributor was Shriram Insight Share Brokers Ltd which contributed 83crs of AUM for March23 (Around 30% of total AUM). (Source - Distributors data which they publish)
  • Imp management level changes as mentioned above.
  • Hiring employees as mentioned above.
  • Sharing office space with Shriram Finance’s branches. Also taken a office space in Mumbai for a capacity of 200 ppl (MD mentioned in the 1st video link i provided).
  • New website launced in Nov/Dec23.
  • Alteration in MOA for venturing into different biz as per SEBI act. (could be just a resolution)
  • Parent’s focus is seen from the interviews (since its now their step down subsidiary).
  • New fund offering.

Scaling up will take a lot of time. Its a highly competetive industry with squeezing margins. I hope they succeed this time.

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Are you sure Shriram AMC is ultimately owned by Shriram Finance?

It may be worth re-checking…

By the way, from the annual report of Shriram Finance…

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Just two subsidiaries listed here.

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Hi. Shriram AMC is held by Shriram Credit Company Ltd. Shriram Credit company was held by Shriram Capital Limited which was merged into Shriram Transport and Shriram city union to form Shriram Finance. Since Shriram Capital limited’s FY23 AR was not available on their website, I had referred to S&P’s portal for shareholding. Below pic taken from S&P’s portal and for reference only pls. (pic deleted later due to privacy issues)

As regards to your query on why AR doesn’t reflect Shriram Credit company as subsidiary, I will mail this to the company secretary of Shriram AMC.

Regarding Shriram One app, they are incorporating MF biz in the Shriram One app as per their app support team. Also they are bring thier own Shriram MF app as per their social media team. So this will help accelerate the AUM increase.

Shriram One App
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Shriram MF app

Their strategy of Quant + Fundamental approach explained by CEO and CIO in the below video.

https://www.youtube.com/watch?v=ru5k3uZoqXM - CEO
https://www.youtube.com/watch?v=14m5DC0DEio - CIO

Disclosure: Invested. No shares sold recently. No change in view.

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Dear All, as previously mentioned by me that Shriram AMC was step down subsidiary of Shriram Finance, the same is not true. It is still owned by the promoters of Shriram Finance i.e. privately held. Also have taken confirmation from the CS that Shriram Credit (which holds Shriram AMC) is held by Shriram Investment Holdings Ltd.

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With this development it warrants a 15-20% reduction in my position.
It however doesn’t change the broad thesis as I can see a lot of changes happening within the co be it hiring, distributors additions, Shriram Finance MD confirming their intent to grow this business and many changes elaborated earlier.
@RG477 @Ajitesh_Garg pls note.

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In that case to be honest @rp6 this entire scheme could be just to sell the AMC, because this changes the dynamic. So they might be hiring and stuff just to get valuations or something. At current prices (if I think in terms of Price/AUM) a lot of that is already priced in.

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@Ajitesh_Garg At a Mcap of less than 400crs you definitely won’t get a AMC biz with a reputed brand attached to it.
Getting into a AMC biz would itself cost 75-100crs + attach Shriram’s brand to it and you would get the base valuation. Shriram brand is very regarded brand after Sundaram in South India.

As mentioned earlier ~1500cr E-AUM is already priced in this price just based on peer comparison. But for a startup like co valuations doesn’t work like this. You have to see the big opportunity size which it can tap. Hardly 15% of the total industry AUM comes from South India. Shriram has fixed deposits base of 32k crs. Surely it can sell MF’s in big numbers. Its a scale business with fixed costs upfront.
Product edge i.e. Funds is what they lack since there is no alpha yet. New CIO joined a year back. Implemented Quant strategy since Sep23. Check their Multi Asset fund which has generated 450bps alpha in last 6m (obviously can’t be extrapolated).
They hardly had any distributors and now started to onboard them. They had no broker distribution, no branch distribution, no employees, bad product. So AUMs should only go up from here if they generate alpha.

Promoters intent can’t be guessed. They might sell or grow this biz. But they would make it meaningful before they exit :sweat_smile:.

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Another question…

When AMCs are sold, does the brand carry forward?

Perhaps not, right. So when people buy an AMC they buy AUM, customers, teams etc. But perhaps not the brand?

I wonder if there are instances where even though an AMC was sold, the brand was retained.

Also, when you say Rs 1,500 cr of E-AUM is priced in, did you mean 15,000 or 1,500? Do share calc if you can! :slight_smile:

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You should check why Bajaj Finance is valued at super premium as compared to its peers. That’s because of the excellent cross sell customer base they have. It can keep on getting those excellent ROA’s basis the cross sell base they have which will drive future growth. Mix/kind of customer base/repeat customers is also imp. Good brand/management creates those “AUM, customers, teams etc.” Did Nestle create Maggi or Maggi created Nestle. :grinning:

By your logic new ventures by a good brand name should be valued at zero because it doesn’t have any biz?
Lets say for an example Bajaj enters MF biz (I know it already has) will you value it by AUM or pe/pb/etc metric? That’s how 1000cr looks very cheap for Bajaj MF at the 1st day of incorporation (since you know Bajaj has those quality customers to cross sell). Now extrapolate this with the Shriram brand attached to this entity and the grp support and ppl expertise which it can get and then value the co.

I am not sure why you are mixing brand value with the exit valuation. Anyways, my thought on brand value was with respect of the cross sell base and the grp support they can get…

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Thanks for the detailed revert. Fair point.

I was seeing from the perspective of premium valuation on selling the AMC. I should have been clearer.

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CIO explaining Shriram AMC 2.0 and reason why Mission1 Investments took 23% stake of Shriram AMC (from 6.15 to 10.10).
Plans to launch Mid and Small cap schemes soon, expanding distribution pan India and strengthening Investment team by adding Fund Managers and Equity Analysts (27.20 to 30.32).

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