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Beat on PAT supported by growth in other income

* Anand Rathi Wealth (ARWL) reported operating revenue of INR2.2b in 4QFY25, up 20% YoY (4% miss). Overall revenue growth was driven by a strong 28% YoY growth in the MF business revenue, which reached INR1b. For FY25, overall revenue from operations grew 30% YoY to INR9.4b.

* Opex grew 18% YoY to ~INR1.3b (flat sequentially), driven by 20% YoY growth in employee costs to INR1b. Other expenses grew 11% YoY to INR300m.

* PAT for the quarter stood at INR737m, reflecting a 30% YoY growth (5% beat on estimates). For FY25, PAT rose 33% YoY to INR3b. PAT margins for 4QFY25 expanded 237bp YoY to 33.2%. (MOFSLe at 30.5%).

* For FY26, management has guided for Revenue/PAT/AUM of INR11.75b/INR3.75b/INR1t, respectively.

* We expect ARWL to report an AUM/revenue/PAT CAGR of 20%/18%/20% during FY25-27, with a robust cash generation (INR8.4b of OCF during FY25-27E), an RoE of 38%+, and a healthy balance sheet. However, we believe the company is fairly valued at 34.9x FY27E P/E. We reiterate a NEUTRAL rating with a one-year TP of INR1,900 (premised on 36x Mar’27E P/E).

Strong net inflows despite weak market sentiments

* Total AUM stood at INR771b (+30% YoY), led by sustained strong inflows and an increase in the ticket size of clients. Private Wealth/Digital Wealth AUM grew 30%/17% YoY to INR752.9b/INR18.1b, respectively.

* The company has seen the highest-ever quarterly net inflows of INR34.7b, up 96% YoY, with equity net flows at INR18.75b, up 142% YoY, despite weak market sentiments. For FY25, it grew 76% YoY to INR126.2b, with equity flows increasing 67% YoY to INR77.1b.

* The share of customers with AUM of INR500m+ has increased to 25% in 4QFY25 from 24% in 4QFY24.

* The cost-to-income ratio stood at 59.1% in 4QFY25 (vs 60.3% in 4QFY24) but was above our estimates of 56.8%.

* EBITDA for 4QFY25 grew 24% YoY to INR908m, with EBITDA margins up 125bp YoY to 40.9%. For FY25, it grew 32% YoY to INR4b.

* Other income rose 171% on a YoY basis to INR194m, of which INR108m came from changes in the fair value of investments held, while the balance was earned from interest on fixed deposits and other financial assets.

* The company recorded one of the lowest client attrition/regret RM attrition rates in the industry at 0.52%/below 1% in FY25.

* AUM per RM increased to INR1.98b in Mar’25 from INR1.74b in Mar’24, driven by continued association of RMs with the organization. Additionally, clients per RM improved to 31 from 30 in 4QFY25. The company has guided for further improvement towards the cap of 50 clients per RM, supported by investments made in technology.

Highlights from the management commentary

* In adverse market conditions, structured products tend to perform well, leading to a shift in the AUM mix in their favor (in FY25, the mix stood at 28% vs 24% in FY24). Yields on matured structure products stood at 1.18% per annum, with no compression expected in the medium term.

* With respect to the incorporation of its UK subsidiary, ARWL has applied for a license to commence its wealth management operations. The licensing process is expected to take approximately 4-6 months, following which operations will be initiated.

* With regard to SEBI's introduction of the SIF platform, ARWL has indicated that it does not intend to onboard this platform for its clients' portfolios.

* ARWL currently operates an active representative office in Dubai and has applied for a license to commence operations in Bahrain.

Valuation and view

* We expect ARWL to report an AUM/revenue/PAT CAGR of 20%/18%/20% during FY25-27. With a robust cash generation (INR8.4b of OCF during FY25-27E), an RoE of 38%+, and a healthy balance sheet, the company’s valuation is wellpriced at 35x FY27E P/E. We have broadly retained our estimates for FY26 and FY27. We reiterate a NEUTRAL rating on the stock with a one-year TP of INR1,900 (premised on 36x Mar’27E P/E).

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