IPO Review - Anand Rathi Wealth Ltd By ICICI Direct
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A play on structural wealth management business
About the Company: Anand Rathi Wealth Limited (ARWL) is one of the leading nonbank wealth solutions firms in India and has been ranked amongst the top-3 non-bank mutual fund distributors in India by gross commission earned in FY19, FY20 and FY21. It was incorporated on March 22, 1995.
* Anand Rathi acts as a mutual fund distributor, registered with AMFI. It distributes mutual fund schemes managed by AMCs and earns distribution commissions on a trail basis from AMCs.
* They are currently present across 11 cities in India like Mumbai, Bengaluru, Delhi, Hyderabad, Kolkata, Chennai, Pune, Chandigarh, Jodhpur, Noida,etc and compete with Bank and Non-bank wealth management distributors.
Key triggers/Highlights:
* As of August 31, 2021, Private Wealth (PW) vertical caters to 6,564 active client families, serviced by a team of 233 RMs. vertical focuses on the HNI segment with AUM potential of ₹5 - ₹ 50 crores, who are seeking quality and value addition rather than low cost solutions
* The AUM of |30209 crore comprises mutual fund schemes and other financial products such as bonds, MLDs and other securities held by clients. PW AUM has grown at a CAGR of 22.47% from ₹18037 crore as of 31st March, 2019 to ₹29472 crore on March 31, 2021.
* ARWL is currently distributing products as per customer needs and not manufacturing own products in this arm, enabling it to offer right product but margins remain low.
* It generated revenue of | 279.2 crore and PAT of |45.1 crore in FY21 with profit margin of 16.2% and for 5 months ended August 31, 2021 profit margin has increased to 30.3%.
What should investors do? ARWL is a play on wealth management business where Ultra HNI segment is witnessing significant growth. Given the fundamentals and growth potential, valuation of (ARWL) looks reasonable, as at upper end of price band, the company is valued at ~7.5% AUM and ~18.7x EPS (annualised FY22E). The closest listed peer IIFL Wealth has over |2.2 lakh crore in AUM and trading at 25xFY22E (consensus) offers healthy growth potential too.
* We remain positive in the space and assign SUBSCRIBE rating to the IPO.
Key risk & concerns
* Changes in regulatory environment may impact business and margins
* Increasing competition in wealth management space
* Pandemics, like Covid-19, could impact materially.
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