IPO Size: Rs. 539 Cr, entirely OFS
- Mainly by PE investor Wagner, looking to halve its 40% holding
Price band: Rs. 595-630 per share
M cap: Rs. 2,600 cr, implying 21% dilution
IPO Date: Tue 10th May to Thu 12th May 2022, Listing 23rd May 2022
Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.
Mutual Fund Distribution Company
85% of 9MFY22 revenue of Rs. 320 cr was earned via commission from mutual fund distribution. Company has distributed Rs. 48,000 cr assets under management (AUM), 90% of which is ‘actively-managed’ equity-oriented schemes, fetching higher commission income. It enjoys 2.4% share of Indian mutual fund’s equity AUM, with 80% AUM coming from top 30 (T30) cities.
Dependant on 2 Uncontrollable Factors
In past 3.75 years, company’s distribution AUM grew at 33% CAGR over 14% industry growth. But its revenue has grown at a slower pace of 14% CAGR, due to industry-wide squeeze of distributor margins on regulatory changes. Besides, revenue is also subject to performance of the equity schemes it distributes, something it has no control over. Shift to B2B model from B2C in past 2 years led to commission expenses rising at a faster pace vis-à-vis commission income.
Previously, company’s subsidiaries have been subject to regulatory fines and warnings (as recent as Aug 2020) for alleged contravention of statutory provisions, lapses in broking (mis-utilisation of client fund, pledging securities in excess of client obligations, failure to settle credit balance of client, KYC implementation) and NBFC license cancellation by RBI on inability to meet net owned funds requirement.
Imprudent Issue Pricing
9MFY22 PAT stood at Rs. 58 cr, leading to an EPS of Rs. 14, on an equity of Rs. 21 cr (FV Rs. 5). Accounting for higher revenue on Karvy’s Rs. 8,100 cr AUM acquired in Nov 2021, PE multiple on FY22E is about 33x which is seen highly expensive, as larger peer IIFL Wealth is ruling at 26x, while Anand Rathi Wealth is at 21x.
Prudent clocked PAT of Rs. 58 cr in 9MFY22, whereas Anand Rathi Wealth’s PAT was Rs.90 cr for the same period. Anand Rathi earns 140 bps as revenue on AUM, while Prudent earns 100-115 bps. Despite lower fees and profits, Prudent is seeking a m cap same as Anand Rathi’s Rs. 2,600 cr, making it unjustified.
Prudent cannot be compared to the likes of CDSL and CAMS, both larger in scale and operating in near-duopoly business.
Thus, IPO pricing is not at all investor-friendly and we are rather surprised that no heed has been paid to current secondary market conditions, while pricing the issue.