A High Growth Potential AMC
"Presenting an under 20M Marketcap asset management company, with a veteran CXO, and part of the 8B BFSI group."
Imagine an asset management business, one that possesses a rich legacy, yet holds the promise of a startup-like non-linear growth trajectory. Valued at approximately USD 15 million (Akin to many seed-stage startups), after a complete warrant conversion, this company boasts a substantial cash reserve and minimal burn rate. What truly sets it apart is the recent appointment of a very astute CXO, armed with over two decades of experience including significant time spent in India's most well-run bank.
Interestingly enough, this company is not your typical startup, but a public firm nestled within a conglomerate boasting a market cap exceeding USD 8 billion. With synergistic financial services operations in place, this setup presents a unique advantage. Additionally, the recent influx of funds from international financial and strategic investors further highlights the potential of this interesting company.
Allow us to shed some additional light, discovered through our careful diligence. The newly appointed senior leadership’s alignment with the company's growth is evident in the ESOP allocations. Furthermore, the asset management company has recently filed to launch a new scheme or fund with SEBI, showcasing a commitment to expanding its offerings. Additionally, the conversion of warrants into equity by international investors indicates their confidence in the company's future prospects.
Of course, no opportunity is without its risks. Intense competition looms large, with established AMC giants such as HDFC, DSP, and ICICI, as well as emerging players like Zerodha Smallcase and Bajaj Finance vying for market share. Narrow margins, dictated by both regulations and competition, pose another challenge. Moreover, building distribution channels can be an expensive and time-consuming endeavor. While algorithmic funds may not pose an immediate threat, the potential disruption caused by AI funds replacing traditional mutual funds remains a possibility. Lastly, it's worth noting that the stock market does not typically assign high valuations to asset management companies.
Considering the potential rewards and risks, this opportunity unfolds as a long-term endeavor, spanning 5 years minimum. To capitalize on it, we have taken a gradual approach starting with a mid-sized initial investment.
So, what factors should we monitor to evaluate the company's execution?
Observing how the company distributes and markets its new fund, assuming it receives approval, will provide valuable insights.
Additionally, the pursuit of innovative partnerships and collaborations in a crowded market will be indicative of the company's forward-thinking approach. Leveraging the distribution network of their group companies could prove to be a strategic move.
Observing the company's approach to wealth management and potential foray into ancillary businesses, if any, will provide a glimpse into its diversification strategy.
Finally, the development of a robust tech-driven user interface will be crucial for enhancing the overall user experience.
In stark contrast to the special situation buy we discussed earlier, which focused on a steel manufacturing company, this asset management play falls into a different investment philosophy—the listed startup bucket.
While the steel company offered a margin of safety with its significant revenue, it faced the challenges of high debt and the imperative to achieve profitability. In contrast, this asset management opportunity presents a unique landscape. With a valuation akin to many seed-stage startups, it possesses the potential for non-linear growth. Although it lacks the same margin of safety as the steel company, it brings a blend of legacy and innovation to the table.
While the steel company grappled with scalability concerns, this asset management startup carries the promise of rapid growth within a remarkably short period. However, it also comes with its share of risks, including intense competition from established AMC giants and emerging players. Narrow margins, regulatory constraints, and the need to build distribution channels pose additional challenges. Furthermore, the ever-looming possibility of AI funds disrupting traditional mutual funds adds to the complexity.
Considering these factors, it's crucial to approach this asset management play with a long-term perspective, spanning at least five years. Gradually building a position, rather than seeking immediate gains, aligns with the listed startup investment philosophy.
We want to emphasize that this communication should not be misconstrued as a recommendation, as we are not SEBI RIAs. It is crucial for readers to conduct their own due diligence and exercise caution.
Therefore, we urge all readers to approach this opportunity with prudence and carefully consider the potential risks involved. While the prospects appear promising, it is essential to maintain a cautious approach and stay informed of the inherent dynamics of the industry.
Happy to chat and discuss this in detail
About Us -
Govind Shorewala - Entrepreneur (Mining, Textiles) & Investor (Private & Public Markets) → Reachout at: govind.shorewala@gmail.com
Aaroah Mittal - Early Stage VC → Reach out at: aaroah.m@people-group.com