Powered by: Motilal Oswal
2025-08-17 09:11:06 am | Source: Motilal Oswal Financial Services Ltd
Neutral Prudent Corporate Advisory Services Ltd for the Target Rs.2,600 by Motilal Oswal Financial Services Ltd
Neutral Prudent Corporate Advisory Services Ltd for the Target Rs.2,600 by Motilal Oswal Financial Services Ltd

Performance in-line across parameters

* Prudent Corporate Advisory (Prudent) posted an operating revenue of INR2.9b, +18% YoY (in line) in 1QFY26, fueled by a 17% YoY surge in commission & fees income.

* EBITDA grew 14% YoY to INR673m (in line), reflecting an EBITDA margin of 22.9% (vs 23.6% in 1QFY25 and our estimate of 23.2%). Operating expenses grew 19% YoY to INR2.3b (in line), with fees and commission expenses growing 22% YoY (inline), employee expenses growing 16% YoY (8% above estimates), and other expenses growing 2% YoY (12% below estimates).

* Top-line and expenses meeting our expectation resulted in an in-line PAT of INR519m, growing 17% YoY.

* Management expected yields to be largely stable at 90bp for FY26. However, the recent repricing done by SBI MF will have a further impact of ~INR6-7m in 2QFY26 (~INR3.5m in 1QFY26), while Kotak MF repricing will have an impact of ~INR27m for FY26.

* We have largely maintained our earnings estimates, considering the in-line performance during the quarter. We expect Prudent to deliver a revenue/EBITDA/PAT CAGR of 18%/16%/20% over FY25-27, fueled by growing MF AUM and a focus on increasing the share of non-MF business in the overall mix. The company is expected to maintain an RoE of >28% for FY26/FY27. We reiterate our Neutral rating with a TP of INR2,600 (based on 38x EPS FY27E).

QAAUM maintains growth momentum as SIP flows remain strong

* Prudent’s QAAUM grew 23% YoY to INR1.1t, while the closing AUM stood at ~INR1.2t for the quarter. Monthly SIP flow grew to ~INR10b from INR7.8b in 1QFY25, reflecting a market share of 3.5%.

* Total insurance premium for the quarter came in at INR1.4b (+22% YoY), of which life insurance premium stood at INR1.1b (+19% YoY) and general insurance premium stood at INR376m (+33% YoY).

* Commission and fees income for the quarter rose 17% YoY to ~INR2.9b, of which INR2.5b (+21% YoY) was contributed by the distribution of MF products and INR291m (+11% YoY) by insurance products.

* Revenue from the distribution of MF grew 21% YoY and 8% QoQ, fueled by strong SIP inflows and active participation from MFDs.

* Revenue from the sale of insurance products increased 11% YoY, with the life insurance fresh book growing 3% YoY and the general insurance fresh book growing 57% YoY in 1QFY26.

* Revenue from the stockbroking segment dipped 35% YoY. Revenue from other financial and non-financial products declined 8% YoY.

* Commission payout grew 22% YoY to INR1.7b, with the number of MFD growing to 34,232 (30,349 in 1QFY25). This reflected 60.5% of consolidated distribution revenue (59.1% in 1QFY25), and management expects this to remain largely stable in the subsequent quarters, despite some impact from competitive pressure.

* Other income for 1QFY26 rose 47% YoY to INR103m (14% beat).

Key takeaways from the management commentary

* A 15-16% fixed salary hike was implemented in Apr’25, and management expects overall employee cost to rise ~20% in FY26. Despite near-term pressure on RM costs from increasing competitive intensity, management remains confident of achieving 23-24% margins (excluding ESOP costs) in FY26.

* Prudent started 2QFY26 with a 7% sequential uptick in daily average AUM compared to 1QFY26 QAAUM.

* Life insurance distribution remained muted as the previous focus on traditional products is being scaled back. Contribution from guaranteed plans has reduced from 70-80% earlier to 40-45% now.

Valuation and view

* We expect the revenue growth trajectory to remain in high teens during the medium to long term, primarily due to: 1) the rising MF AUM, mainly led by an improving SIP participation, 2) focus on a one-stop-shop solution, which should result in a rise in distribution revenue from higher-margin products such as insurance, and 3) healthy traction in AIF/PMS/FD segments.

* We have largely maintained our earnings estimates considering the in-line performance during the quarter. We expect Prudent to deliver a revenue/EBITDA/PAT CAGR of 18%/16%/20% over FY25-27, fueled by growing MF AUM and a focus on increasing the share of non-MF business in the overall mix. The company is expected to maintain an RoE of >28% for FY26/FY27. We reiterate our Neutral rating with a TP of INR2,600 (based on 38x EPS FY27E).

 

 

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412

Disclaimer: The content of this article is for informational purposes only and should not be considered financial or investment advice. Investments in financial markets are subject to market risks, and past performance is not indicative of future results. Readers are strongly advised to consult a licensed financial expert or advisor for tailored advice before making any investment decisions. The data and information presented in this article may not be accurate, comprehensive, or up-to-date. Readers should not rely solely on the content of this article for any current or future financial references. To Read Complete Disclaimer Click Here