The authors are Reuters Breakingviews columnists. The opinions expressed are their own.
By Shritama Bose and Katrina Hamlin
MUMBAI, March 25 (Reuters Breakingviews) - Now is not the ideal time for Prudential PRU.L to take its Indian asset-management unit public. The London- and Hong Kong-listed insurer might be able to pocket a tidy sum, but it would be left with a smaller stake in a fast-growing corner of a key market.
Pru owns 49% of ICICI Prudential Asset Management, India's second-largest purveyor of mutual funds by assets under management. Majority owner ICICI Bank ICBK.NS is keen on retaining its controlling stake. Pru may seek a $12 billion valuation for the unit, Bloomberg reported earlier this month, citing unnamed people familiar with the matter.
That looks punchy. The business may be worth almost 20% less than that, valuing last year's net profit of $298 million at 32 times earnings, the average multiple for a group of peers. That would peg Pru's stake at $4.6 billion.
There's an obvious short-term appeal for Pru in selling part of its holding. CEO Anil Wadhwani wants to improve returns for shareholders. He also wants to eliminate the last dregs of the valuation gap with Hong Kong-listed rival AIA 1299.HK, which back in 2021 traded at 24 times forward earnings versus Pru's 14 times. AIA's multiple has since plummeted to 11.5 times, with Pru's drop less dramatic to 9.7 times, per LSEG. Wadhwani's intention to hand net proceeds to his shareholders would at least achieve the first goal. But as a one-off payment, it's hardly sustainable.
Besides, ICICI Prudential is growing at a fast pace: funds under management rose 34% in 2024, a tad faster than the broader industry in India. Sustaining that would boost earnings for Pru over time and warrant a bigger price tag in the future. The timing isn't great either. Selling by offshore investors has pulled India's equity market off its highs, and companies are downsizing share sales.
It may be in Pru's best interests to float the business by giving up as little of its ownership as possible. Global money managers are doubling down to grab a slice of India's household savings. BlackRock has entered a joint venture with Mukesh Ambani's Jio Financial Services JIOF.NS. HSBC HSBA.L is deepening its branch network into "cities identified for their growing wealth pools". They're doing so because, despite recent blistering growth, mutual funds have so far reached less than 4% of India's population.
Pru's India listing may be well-intentioned, but the danger is that the insurer will look like it is swimming against the tide.
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CONTEXT NEWS
Multinational insurer Prudential is considering seeking a valuation of $12 billion for ICICI Prudential Asset Management Company in an initial public offering of the Indian unit, Bloomberg reported on March 4, citing unnamed people familiar with the matter.
Prudential on February 12 said it is evaluating a potential listing of the Indian asset manager, in which it holds 49%. The net proceeds from the float would be returned to shareholders, the insurer added.
India's asset managers beat the broader market https://reut.rs/4hIn3u6
(Editing by Antony Currie and Ujjaini Dutta)
((For previous columns by the author, Reuters customers can click on BOSE/HAMLIN/shritama.bose@thomsonreuters.com katrina.hamlin@thomsonreuters.com))
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