IPO Size: Rs. 660 cr
- Entirely offer for sale (OFS) by promoters (75% stake to drop to 49%) and senior management
Price band: Rs. 530-550 per share
Mcap: Rs. 2,290 cr, implying 29% dilution
IPO Date: Thu 2nd Dec to Mon 6th Dec 2021, Listing Tue 14th Dec 2021
Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.
- AUM serviced grew at 20% CAGR between FY19 to FY21, with AUM at Rs. 30,200 cr, as at 31.8.21. Number of clients also grew at a similar rate of 20% during this period to 6,564.
- Wealth management business is asset-light, with higher operating leverage and benefitting from financialisation of savings in the country. Company clocked PAT of Rs. 51 cr for five months ended 30Aug 21 on revenue of Rs. 167 cr, translating into 31% net margin and EPS of Rs. 12.25.
- Valuation discount to peer: IIFL Wealth, with mcap of Rs. 13,100 cr, is ruling at FY22E PE multiple of 30x while Anand Rathi Wealth’s annualised 5MFY21 earnings leads to PE multiple of 19x. Based on mcap to AUM ratio, Anand Rathi’s 7.6% is lower than IIFL Wealth’s 10%, although in-line with listed asset management companies (Nippon, UTI, Aditya Birla AMC) ruling between 5.5-8.5%.
Subject to Risks:
- Wealth management fees linked to AUM which is linked to market performance. Hence, company’s revenue carry risk of market cycle. FY21 revenue declined 20% YoY to Rs. 265 cr, while PAT fell 27% YoY to Rs. 45 cr, as covid impacted in the initial months.
- About a third of company’s revenue comes from mutual fund distribution, fees from which reduced from Rs. 104 cr in FY19 to Rs. 90 cr in FY21, as regulatory changes to trail fees adversely impacted industry, highlighting regulatory risk.
- Two-third revenue earned by the company from selling structured products, which it purchases from group company Anand Rathi Global Finance Limited (an NBFC owned 89% by promoters and 11% by company) and from other NBFCs. These related party transactions can materially alter company’s income and may also be a possible source of corporate governance.
Group companies already highlight high compliance risk – (i) stock broking arm defending Rs. 8 cr penalty for alleged non-genuine F&O trades, (ii) a director and group company party to the NSEL case, besides (iii) company lacking clarity if it is to be registered as an NBFC.