Anand Rathi Wealth Ltd - IPO - Healthy Prospects; Valuations Look Pricey - Reliance Securities

About the Company

Anand Rathi Wealth (ARW), incorporated in 1995, is one of the leading non-bank wealth solutions firms in India and has been ranked amongst the top three non-bank mutual fund distributors in the country. ARW offers a wide product portfolio of wealth solutions, financial product distribution, and technology solutions to its clients. The company provides services primarily through its flagship private wealth (PW) vertical, where it manages Rs295bn in AUM as of August 31, 2021. ARW's PW vertical caters to 6,564 active client families, through a team of 233 RMs. In addition to the PW vertical, the company has 2 other new-age technology-led business verticals - Digital Wealth (DW) and Omni Financial Advisors (OFA). ARW has achieved a dominant position in the distribution of financial products, with a focus on the growing HNI segment. Currently, the company has a presence across 11 cities in India. Notably, the AUM of ARW includes mutual fund distributions and structured products / MLDs. Further, it does not include demat holdings of clients in AUM, unless they have also used the distribution service of ARW or have bought MLDs through ARW. ARW has achieved a dominant position in the distribution of financial products, with a focus on the growing HNI segment through an uncomplicated, holistic and standardized offering, delivered through an entrepreneurial team of private wealth professionals.

Financials in Brief

ARW's financial performance has not been impressive over the last two years and was impacted by the pandemic in FY21. While AUM recorded 20% CAGR over FY19-FY21, EBITDA and net profit recorded a negative 11% and 12% CAGR, respectively during the same period. Notably, income yield of ARW has 181bps in FY20 to 99bps in FY21. However, its performance in the current fiscal till August 2021 is very strong and sustainability of the same should augur well for the company. Notably, ARW's cumulative OCF and FCF stood at Rs1.9bn and Rs1.3bn, respectively over FY19-FY21. In AUM proposition, equity MF AUM forms over 37% of the total AUM followed by 35% from structured products / MLDs.

Our View

The IPO is valued at 51x FY21 earnings and 9.5x FY21 book value, which are at significant premium of its listed peer IIFL Wealth Management. Considering the superior AUM book (2x of IIFL Wealth), income yield and return ratios, we believe the premium valuations are justified and the IPO is reasonably priced. However, limited gains can be expected hereon in the medium-term perspective, as incremental value accretion can be possible only with the sustainability of strong performance in ensuing quarters.

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Source : Equity Bulls

Keywords

AnandRathiWealth IPO RelianceSecurities