Buy Prudent Corporate Advisory Services Ltd for the Target Rs. 2,600 By Prabhudas Lilladher Ltd
Size and distribution to drive market share gains
Quick Pointers
* MF industry indirect equity AuM slated to grow at 18-20%
* Scale with technology edge could help in new TER regime
* PRUDENT has the ability to pass on commission cuts
We initiate coverage on PRUDENT with ‘BUY’, valuing at multiple of 31x on Mar’28 core EPS to arrive at TP of INR 2,600. We are optimistic about its business prospects given (1) indirect equity AuM (76% share) for the MF industry is slated to grow at 18 - 20% on low MF penetration, (2) it is the 5th largest distributor with technology and distribution edge, which could bode well in the new TER regime, under which the industry could see consolidation, (3) pricing power has shifted from banks to MFDs as the latter are scaling up faster (4) AuM is distributed with top-8 AMCs contributing 68%, thereby partially mitigating performance risk that AMCs are exposed to, and (5) it has ability to pass on the impact of commission cuts. Currently, stock is valued at 25.6x on Mar’28 core EPS.
Indirect equity AuM growing at healthy CAGR of ~21%: Indian MF industry is still in infancy and there is significant scope for growth as penetration is low at ~8%. While direct equity AuM has been growing at a faster pace, ~35% CAGR over FY19 to Feb’26, indirect still constitutes 76% of equity AuM, indicating 21.5% CAGR. Hence, indirect equity AuM is slated to grow consistently at 18-20% over the medium to long term.
MF growth to drive distribution revenue: PRUDENT mainly follows a B2B model; 91bps is earned from AMC and ~65% (58bps) is passed on to MFDs. Share of B2B in AuM was 90% as of Dec’25 and 90% of volumes originate online. In 9MFY26, MF distribution fees contributed ~86% to revenue. Technology has been a moat for PRUDENT, which helps MFDs to complete KYC & onboarding, and facilitates buying of bonds, insurance, etc.
5th largest distributor; decadal AuM CAGR of 32%: Being the 5th largest distributor as per FY25 data with total fees of INR 10.6bn and AAuM of INR 996bn after NJ, SBI, HDFC Group and ICICI Group, top 8 AMCs contribute 68% to overall AuM compared to 63% for NJ, 78% for HDFC Group, 81% for ICICIB Group and 99% for SBI MF. It charges a high gross commission of 106bps vs 115bps for NJ; 109bps, Anand Rathi; and 82bps, AXSB.
Pricing power shifts to MFDs from banks: Pricing power has shifted from banks to MFD. Over FY14-19, banca-based AAuM increased at a faster pace of 23.5% CAGR vs 18% for MFDs. Hence, banca avg. yield was 85bps compared to 72 bps for MFDs. However, over FY20-25, MFD-related AAuM increased at a faster pace of 23% CAGR, while banca slowed down to 14.7%. Avg. MFD yields rose to 80bps, while banca yields fell to 64bps.
Ability to pass on commission cuts: PRUDENT has passed on 70% of AMC commission cut (since Aug’24). Though, yields have remained stable YoY since incremental business (25% of AuM) is higher yielding. Impact of the 5bps exit load removal and 10bps GST cut could be negative ~2bps. PRUDENT can manage this hit by passing on commission cut as done in the past while newer flows have higher yields. Hence, EBITDA margins may remain steady at 24%. We see a core PAT CAGR of ~22% over FY26-28E.
Please refer disclaimer at Report
SEBI Registration number is INH000000933
