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Lower operating expenses lead to a PAT beat

* Prudent Corporate Advisory (Prudent) reported an operating revenue of ~INR3.5b (+18% YoY/-4% QoQ in 1QFY27; in line). Commission and fees income for the quarter rose 18% YoY to ~INR3.4b, of which INR2.9b (+18% YoY) was contributed by the distribution of MF products, while the contribution from distribution of insurance products rose 21% YoY to INR351m.

* Operating expenses grew 14% YoY/down 3% QoQ to INR2.6b, with fees and commission expenses rising 10% YoY to INR1.9b, employee expenses increasing 33% YoY, and other expenses growing 22% YoY. EBITDA grew 32% YoY/dipped 4% QoQ to INR891m (8% beat), with an EBITDA margin of 25.6% (vs. 22.9% in 1QFY26 and 23.4%).

* PAT grew 44% YoY/26% QoQ to INR748m (20% beat, led by lower operating expenses). PAT margin improved to 21.5%, up from 17.6% in 1QFY26 and 16.4% in 4QFY26.

* The recent regulatory changes led to a dip in gross yields by ~2.8bp QoQ to 88bp. Prudent’s 1QFY27 margins are likely to represent the new steady state, with yields expected to decline gradually by 1-2bp over the medium term due to competitive pressure on the new business.

* We raise our FY27/FY28 earnings estimates by 7%/8%, driven by a lower commission ratio to reflect the recent regulatory changes, partly offset by lower revenue yield assumptions and higher employee costs (in line with management guidance). We expect Prudent to deliver a revenue/EBITDA/PAT CAGR of 18%/ 23%/29% over FY26–28. We reiterate our Neutral rating with a TP of INR3,260, based on 37x FY28E EPS.

Key takeaways from the management commentary

* Yields on new business remain higher than the existing book, and management expects the 88bp gross yield to sustain going forward.

* Commission expenses grew 9.8% YoY due to GST-related regulatory changes and the removal of the 5bp exit load from TER. The one-time reset is complete, with current gross margins reflecting the new normalized regulatory framework.

* SIF AUM crossed INR5b with ~1,326 certified distributors. Management expects adoption to accelerate following simplified certification norms, with monthly SIF business growing faster than the mutual fund business

Valuation and view

* Prudent delivered a healthy 1QFY27 performance, with PAT outperforming expectations driven by lower operating expenses despite the impact of recent regulatory changes on yields. Core business momentum remains strong, supported by healthy equity AUM growth, resilient SIP inflows, robust insurance premium growth, and continued traction across alternate products. Management expects the current gross yield of 88bp to represent the new steady state, while operating leverage and a lower commission ratio should support margin expansion over the medium term.

* We raise our FY27/FY28 earnings estimates by 7%/8%, driven by a lower commission ratio to reflect the recent regulatory changes, partly offset by lower revenue yield assumptions and higher employee costs (in line with management guidance). We expect Prudent to deliver a revenue/EBITDA/PAT CAGR of 18%/ 23%/29% over FY26–28. We reiterate our Neutral rating with a TP of INR3,260, based on 37x FY28E EPS

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