Sell Anand Rathi Wealth Ltd for the Target Rs 1,630 by Motilal Oswal Financial Services Ltd
Higher-than-expected opex leads to EBITDA miss; revenue and PAT in line
* Anand Rathi Wealth (ARWM) reported revenue from operations of ~INR3.4b in 2QFY27 (in line), growing 16% YoY/7% QoQ, primarily driven by a 15%/17% YoY growth in revenue from the distribution of financial products/MF.
* Operating expenses for 2QFY27 grew 42% YoY to INR2.3b, with employee costs rising 50% YoY to INR1.9b, while other expenses rose 13% YoY to INR396m. EBITDA came in at INR1.2b (5% miss due to higher opex), declining 15% YoY but rising 8% QoQ, with EBITDA margin at 34% (vs our est. of 35.8%) (46.2% in 2QFY26).
* Consolidated PAT stood at INR893m, declining 11% YoY/45% QoQ, in line with estimates, while margins came in at 26% vs 33.6% in 2QFY26 and 26.7% (MOFSLe).
* The company achieved 49% of FY27 revenue guidance and 52% of adjusted PAT guidance in 1HFY27, with management reiterating confidence in meeting full-year targets. The company is expanding into new avenues, with London operations commenced last quarter and GIFT City approvals secured, while targeting mutual fund licence application submission by the end of Oct’26.
* We have raised our FY27 earnings estimates by 3%, while keeping FY28 estimates unchanged, factoring in lower other income, offset by reduced employee costs. We expect AUM/Revenue/PAT to expand at CAGRs of 26%/21%/17%, respectively, over FY26–28. We reiterate our Sell rating with a one-year TP of INR 1,630, based on 50x FY28E EPS.
Highest-ever quarterly net flows recorded in 2QFY27
* Total AUM grew 18% YoY to ~INR1.1t, with guidance for FY27 at INR1.2t. The share of equity MFs in the overall AUM mix was stable at 53%. Private Wealth/Digital Wealth AUM grew 19%/15% YoY to ~INR1.1t/INR25.3b, respectively, in 2Q.
* Equity netflows grew in line, with total quarterly net inflows at 39% YoY, rising to INR28.7b/INR41.9b, respectively. Management is targeting net inflows of INR30–40b over the next two quarters. Existing clients contributed 62% of quarterly net inflows, while new clients contributed 38%.
* Monthly SIP flows for Sep’26 increased 24% YoY to INR1.1b despite volatile market conditions.
* The share of customers with AUM of INR500m+ has increased to 31% in 2QFY27 from 27.8% in 2QFY26.
* On the Private Wealth side, the company added 368 net new client families, taking the total to 14.3k (highest addition in Sept’26). It also onboarded 14 RMs, increasing the total to 431 in 2Q. The existing RM workforce can serve ~8k additional clients, providing room for growth without an immediate increase in frontline capacity.
* The company reported one of the lowest client attrition rates in the industry, with only 0.17% of AUM lost in 2QFY27 and 0.26% in 1H. It also reported one of the lowest regret RM attrition in the industry, with only one RM exit in 1HFY27.
* The digital wealth business’s client base increased 15% YoY, reaching 7,584 in 2QFY27. On the OFA side, the platform assets grew 2% YoY to INR69b, while platform clients grew 4% YoY to 16.6b.
* Operating expenses for 2QFY27 grew 42% YoY to INR2.3b, with employee costs growing 50% YoY to INR1.9b (4% higher than est.). Other expenses grew 13% YoY to INR396m (in line).
* Non-cash ESOP expenses are expected to moderate from the first-year peak, helping contain employee cost growth.
* Other income for the quarter came in at INR126m vs INR97m in 2QFY26 (our est. of INR135m). This resulted in a PBT of INR1.2b (down 13% YoY).
* The company intends to maintain PBT margin above 40% and PAT margin above 30%.
Valuation and view
* ARWM is one of the few companies in the listed space that has consistently met its stated guidance. For FY27, management has guided for revenue/PAT of INR14.2b/INR4.6b vs. our estimates of INR14b/INR4.6b.
* We have raised our FY27 earnings estimates by 3%, while keeping FY28 estimates unchanged, factoring in lower other income, offset by reduced employee costs. We expect AUM/Revenue/PAT to expand at CAGRs of 26%/21%/17%, respectively, over FY26–28. We reiterate our Sell rating with a one-year TP of INR 1,630, based on 50x FY28E EPS.
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