L&T Finance selling mutual fund business to HSBC. A step towards consolidation.

Target Date - December 31, 2022

L&T Finance Holdings LTd (LTFH) in a bid towards consolidating towards core business and unlock value from the non core businesses, has decided to sell out the mutual fund business. It’ is selling the business to HSBC India.

Key points to note –

  • L&T Mutual Fund (LTMF) is operated as a 100% subsidiary of LTFH.
  • It has total assets under management (AUM) of Rs 80,300 crore across equity, debt and hybrid schemes. In the total industry AUM of about Rs 37.4 lakh crore that means a share of about 2.1%. It’s currently ranked as 12th largest.
  • The deal value is approx. Rs 3,191 crore ($ 425 mn) implying a valuation at 4% of AUM. This is very reasonable as per industry standards – implying advantage to the acquirer (HSBC) in the deal. Under the current market conditions, the valuation definitely seems to be on the lower side. We have seen deals in this business higher than 10% as well.
  • For HSBC, the deal would add up significant size to it’s own AUM of Rs 11,700 crore. HSBC would also benefit from the better distribution network of L&T Mutual Fund.

Overall, the deal terms seem to be more in favor of HSBC.

To LTFH it allows a respectable exit from a difficult (to make money) business. Beside, the sale consideration should add up to it’s net-worth by about 15%.

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