Anand Rathi
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Dates: 02 December, 2021 to 06 December, 2021
Price Band: Rs. 530 to Rs. 550 per share
Minimum Lot: 27 shares
Minimum Application Amount: Rs. 14,310 to Rs. 14,850
Total Issue Size: Up to Rs. 660 crores (OFS Rs. 660 crores)
The objects of the offer are to achieve the benefits of listing the equity shares on the stock exchanges, enhance the company’s brand name and provide liquidity to the existing
Shareholders.
Anand Rathi Wealth is one of the leading non-bank wealth solutions firms in India and has been ranked amongst one of the three largest non-bank mutual fund distributors in India by gross commission earned in Fiscal 2019, 2020 and 2021.
The company provides services primarily through its flagship private wealth vertical where it manages Rs. 294.72 billion in AuM as on August 31, 2021. Company acts as a mutual fund distributor, registered with the Association of Mutual Funds in India. It distributes mutual fund schemes managed by asset management companies and earns distribution commissions on a trail basis from asset management companies. Further, it purchases non-convertible market linked debentures and offers them to its clients and earns income from these sales. Therefore, the AUM of the company comprises of mutual fund schemes and other financial products such as bonds, MLDs
and other securities held by clients in their own demat accounts. The company’s Private Wealth (PW) AuM has grown at a CAGR of 22.47% from Rs. 180.37 billion as of 31st March, 2019 to Rs 294.72 billion on August 31, 2021.
In addition to PW vertical, the company has two other new age technology led business verticals, i.e., digital wealth and omni financial advisors. Digital wealth vertical is a fin-tech extension of company’s proposition and addresses the large mass affluent segment (i.e. group of individuals with financial assets between Rs. 1 million to Rs. 50 million) of the market with wealth solutions delivered through a ‘phygital channel’ which is a combination of human interface empowered with technology. Omni financial advisors vertical is another strategic extension for capturing the wealth management landscape through which the company provides a technology platform for Independent Financial Advisors (“IFAs”) to service their clients and grow their business.
Particular (Rs. Crs) | 5MFY22 | FY21 | FY20 | FY19 |
Revenue from Operations | 166.29 | 265.33 | 331.8 | 276.58 |
EBITDA | 75.69 | 83.76 | 111.07 | 106.25 |
EBITDA Margin (%) | 44.81% | 30.00% | 33.02% | 37.39% |
PAT (from continuing operations) | 51.09 | 45.10 | 61.61 | 58.43 |
PAT Margin (%) | 30.61% | 17.00% | 18.57% | 21.13% |
RoE (%) | 19.35% | 21.13% | 39.82% | 57.77% |
Net Cash Flows | 34.77 | (21.01) | 140.30 | 67.09 |
The company has witnessed a decline in revenue from operations in FY21 owing to setback suffered from Covid-19.
The company has witnessed a huge jump in its EBITDA margin and PAT margin in 5MFY22 on back of decline in expenses and the company looks to maintain this run rate. Further, PAT for 5MFY22 has already surpassed the PAT reported in FY21.
Net cash flows have shown some sign of relief as they turned positive in 5MFY22 at Rs. 34.77 crores, however continued decline in RoE for the company is a concern and a monitorable going forward.
· One of the leading non-bank mutual fund distributor in India coupled with presence in Convertible Market Linked Debentures
· Focus on the underserved and less price sensitive HNI segment
· Uncomplicated, holistic and standardized solutions offered to clients based on an objective –driven approach
· The company has a unique approach to attract and retain talent through an entrepreneurial work culture
· Revenues from distribution and sale of financial products are dependent on company’s sustained ability to increase its AuM as well as on the performance of the funds that it distributes. Any changes in the total expense ratio due to regulatory changes may reduce its distribution commission income
· Distribution arrangement with AMCs can be terminated without notice, or due to failure on company’s part to comply/ perform
· Company may have been operating as a NBFC without authorization from RBI as observed by the Statutory Auditors in the Fiscal 2021 and 2020 report
· Increased competition from existing and new market participants in the industry may affect company’s market share
Company | RoE (%) for FY21 | NAV per share as at March 31, 2021 | P/E |
Anand Rathi Wealth | 21.13% | 58.46 | 50.09x* |
IIFL Wealth | 15.00% | 321.77 | 35.27x** |
*P/E has been calculated as per the upper price band of the issue
**P/E has been calculated based on the closing market price of equity shares on NSE on November 30, 2021.
The company has posted a stellar performance for 5MFY22 and per the management, this growth is sustainable. However, based on the current valuations, the IPO is priced steeply as compared to its peer. Even after considering the estimated EPS for FY22 (FY21 P/E of 50.09x & FY22E P/E of 18.7x), the IPO fully prices in the growth and in our view this leaves limited upside value for the investors to enjoy. Even though the company will be a key beneficiary of the growing mutual fund and wealth management industry, the competitive intensity is increasing within the industry due to boutique PMS’ and increased new entrants. Further, there are better opportunities in companies already listed in the secondary markets for the investors to play this growth story. Lastly, the IPO is entirely an offer for sale which would result in the promoter holding being less than 50% post the offer. Considering the above factors, we advise the investors to ‘AVOID’ subscribing to this IPO for the time being as there are better IPOs available to subscribe to during the same time period.