SBI Funds Management IPO: SBI likely to earn ₹7,365 crore from share sale; Should you buy the PSU stock?

The initial public offering (IPO) of SBI Funds Management Ltd, India’s largest asset management company by quarterly average assets under management (QAAUM), is set to open for public subscription on July 14. The three-day issue will close on July 16, while the anchor investor bidding will take place on July 13.

SBI Funds Management IPO price band is fixed at ₹545 - ₹574 per share. The company aims to raise ₹11,692.91 crore through a book-built issue that is entirely an offer for sale (OFS) of 20.37 crore equity shares by existing promoters, State Bank of India (SBI) and Amundi India Holding.

At the upper end of the price band, SBI Funds Management is expected to command a post-listing market capitalisation of around ₹1.17 lakh crore.

Under the OFS, SBI will sell up to 12.83 crore equity shares, representing a 6.3% stake in the company, while joint venture partner Amundi India Holding will offload 7.54 crore shares, equivalent to a 3.7% stake. Together, SBI and Amundi currently own around 98% of SBI Funds Management.

Since the SBI Funds Management IPO comprises only an OFS, the entire proceeds will accrue to the promoter selling shareholders, with the company receiving no fresh capital from the issue.

SBI currently owns 126 crore equity shares, representing a 61.73% stake in SBI Funds Management. According to the red herring prospectus (RHP), the lender’s weighted average acquisition cost is just ₹0.15 per share, translating into a total investment of around ₹19 crore.

At the upper end of the IPO price band, the value of SBI’s entire holding stands at nearly ₹68,670 crore, reflecting an appreciation of around 3,600 times over its acquisition cost.

As part of the OFS, SBI will sell 12,83,34,397 equity shares. Based on its acquisition cost of ₹0.15 per share, the total cost of these shares is approximately ₹1.92 crore. At the issue price of ₹574 per share, the stake sale is expected to fetch about ₹7,366.4 crore.

This implies an estimated profit of nearly ₹7,365 crore for SBI from the SBI Funds Management IPO.

Amundi India Holding owns around 74 crore shares, or a 36.26% stake, in SBI Funds Management. Its weighted average acquisition cost stands at ₹4.35 per share, taking its total investment to around ₹322 crore.

At the upper end of the price band, the value of Amundi’s holding is estimated at nearly ₹40,330 crore, representing an increase of almost 125 times over its acquisition cost.

Amundi will sell 7,53,74,842 equity shares through the OFS, which is expected to fetch approximately ₹4,326.52 crore. Based on its acquisition cost, the company is estimated to earn a profit of around ₹4,293.73 crore from the stake sale.

SBI Funds Management IPO allotment is expected to be finalised on July 18, while the IPO listing date is July 21. SBI Funds Management shares will be listed on both the stock exchanges, BSE and NSE.

The book-running lead managers to the SBI Funds Management IPO are Kotak Mahindra Capital Company, Axis Capital, BofA Securities India, HSBC Securities and Capital Markets (India), ICICI Securities, Jefferies India, JM Financial, Motilal Oswal Investment Advisors, and SBI Capital Markets.

SBI share price has risen over 2% in six months, and has gained 26% in one year. The PSU stock has rallied 73% in three years, and has delivered 142% returns over the past five years.