Which Share Can Convert 5 Lacs into 5 Cr?

Brief History of HDFC Group Company- the HDFC Bank

To analyze this we need to go into the history to see how its group company HDFC Bank has performed in the last 23 years from the date of listing in 1995. The HDFC Bank went public in 1995 and share was listed at about Rs.40, 3 times its issue price. The paid-up capital in the year 1995 was 110 Cr and the M.cap of the company was at 4400 Cr. Today, the HDFC Bank has the M.cap of Whopping 5 lacs crore produced a compounded return of 23%. So we have seen how a company with the M.cap of 4400 Cr becomes the M.cap of 500000 Cr in the last 23 years which is close to 100x return thereby created enormous wealth for the investors. The 1 lacs invested in 1995 has become 1 cr now.

Recently, the HDFC AMC listed in the bourses with the M.Cap of 23000 Cr and not to anyone surprise on listing day itself the Mcap went to 37000 Cr a whopping return of 60 %.

 Attraction towards SIPs and Future Growth

The Indian economy is traditionally a saving economy where in the past people mostly park their money in the risk-free schemes such as FD, PPF, EPF, Postal Schemes etc. However, the trend is slowly changing, with falling interest rates to boost growth, the debt instruments have become less lucrative and not having the potential to beat inflation made people invest in equity-linked schemes. In the past 1-2 years, we have seen an unprecedented flow of SIPs in the market reflecting the changing mindset of India’s new generation. The below table represents a SIP inflows in last 2 years. It is clearly seen how it has almost tripled in the last 2 years.

              Quarter                   SIP Inflow( in billion)
               Apr-16                           31
              Jun-17                           47
              Mar-18                           71
              Jun-18                           76

The Indian Mutual Fund Industry today having total AUM of 23.5 Lacs Crore and as per the report, it will reach 100 Lacs Crore by 2025. The average AUM/GDP in the world is around 62% and in India, it is only 12%. The USA has more than 100%. So we can easily imagine the growth available in this business. The HDFC AMC being a leader having market share of 13% will be real king in the making.

Q1FY19 Performance of HDFC AMC

Yesterday, HDFC AMC has announced its Q1FY19 results and once again has shown an excellent YoY growth of 20% in top-line and 25% in bottom-line.

Quarter Revenue PAT EBITDA Paid up Equity EPS
Jun-17 417 164 56.00% 25.17 8.17
Jun-18 501 205 59.00% 105.99 9.7

So Can HDFC AMC convert today’s investment of 5 lacs into 5 Cr in next 25 Years??

The answer to the question is Yes!, it can be achieved. Let us see how. The HDFC AMC in the last 5 years is growing at a CAGR of 16% and we believe this will easily surpass 20% going forward considering that the Mutual fund industry is still at the nascent stage in India. Therefore, considering a growth of 20%, the 5 lacs invested today will easily become close to 5 cr( considering dividends as well).