IPO Note - Anand Rathi Wealth Ltd By Nirmal Bang
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BACKGROUND
ARW (Anand Rathi Wealth) 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 wealth solutions, financial product distribution and technology solutions to its clients. It provides services primarily through its flagship PW (Private Wealth) vertical where it manages Rs. 29,472 Cr in AUM as on Aug, 2021. The company's PW vertical caters to 6,564 active client families, through a team of 233 RMs. ARW generates higher revenue yields compared to competition as the company has consciously avoided stock broking and stock advisory businesses and restricted its focus to the high yielding segments of distribution of structured products and mutual funds.3
Details and Objects of the Issue
The total issue size is Rs. 659 Cr constituting Offer For Sale of up to 1.2 Cr equity shares.
Investment Rationale:
* Focus on the underserved and less price sensitive HNI segment
* Presence in the structured products or non-convertible market linked debentures
* Uncomplicated, holistic and standardized solutions offered to clients based on an objective-driven approach
* Focus on safety net and estate planning services provides value addition to clients
Valuation and Recommendation
The wealth management business has characteristics (annuity revenue, degree of cyclicality, ROE) which are skewed more towards AMCs than stock brokers. We observe that ARW’s ROE has consistently been higher than peers like IFL Wealth and Edelweiss Wealth. Although ARW’s FY19-21 growth in revenue & profits has lagged Edelweiss Wealth, its current year growth has been encouraging and above that of both the peers. At valuations of 18.7x Apr-Aug’21 annualized earnings, ARW does offer some scope for upside on listing, given ~20% earnings CAGR potential in the longer term combined with cross cycle ROE range of 20-30%. We recommend subscribing to the issue.
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