Anand Rathi IPO Fundamental Analysis (May Apply)

Key Business Highlights

Anand Rathi Wealth Management is a non-bank wealth solution firm in India. The assets under management comprise mutual fund schemes and other financial products such as bonds, non-convertible market linked debentures and other securities held by clients in their own Demat accounts.
The Issuer
1. Acts as a mutual fund distributor since the year 2002, registered with the Association of Mutual Funds in India. The Issuer earns distribution commissions on a trail basis from asset management companies.
2. Purchases non-convertible market linked debentures (MLDs) and offer them to its clients and earn income from these sales.
The company has a wide spectrum of clients through a mix of wealth solutions, financial product distribution, and technology solutions. Services are provided primarily through the flagship Private Wealth (PW) vertical where the Issuer manages Rs 294.72 billion in AuM as of August 31, 2021.
The PW vertical caters to 6,564 active client families, serviced by a team of 233 RMs (including 8 RMs working on a contractual basis) as of Aug 2021. Approx 54.69% of clients have been associated with the company for over 3 years, representing 73.55% of the total PW AuM.
Currently present across 11 cities in India, namely, Mumbai, Bengaluru, Delhi, Gurugram, Hyderabad, Kolkata, Chennai, Pune, Chandigarh, Jodhpur, and Noida and has a representative office in Dubai.
The Issuer is also focused on serving the HNI segment of clients. The client families have consistently grown with new family additions of 965, 863, 988, and 455 in FY19, FY20, FY21, and as of Aug 31, 2021, respectively. The PW AuM has also grown at a CAGR of 22.47% from Rs180.37 billion as of 31st March 2019 to Rs 294.72 billion on August 31, 2021.
Attracts and retains talent through an entrepreneurial work culture which helps in lower attrition rates and churning of RMs.
The Issuer has two other new-age technology-led business verticals; Digital Wealth (“DW”), and Omni Financial Advisors (“OFA”) both launched in Sept 2016.
1. DW vertical is a fin-tech extension and addresses the large mass affluent segment (e. group of individuals with financial assets between Rs 1 million to Rs 50 million) of the market with a wealth solution delivered through a ‘phygital channel’ i.e. a combination of human interface empowered with technology. As of August 31, 2021, the AuM for the DW vertical was Rs 7.38 billion with 3,491 clients and 195 client engagement partners.
2. The OFA vertical is another strategic extension for capturing the wealth management landscape through which the Issuer provides a technology platform for Independent Financial Advisors (“IFAs”) to service their clients and grow their business. As of August 31, 2021, 5,062 IFAs had subscribed on the OFA platform. These IFAs handle around 1.63 million clients.

Financial Review of Anand Rathi

The total revenue for 5 months ending 31 Aug 2021 was Rs 168.90 crore and the Issuer posted a PAT of Rs 51.09 crore. There has been a substantial increase in its profitability margins in the 5 months when seen against its full-year FY21.

The revenues for FY 21 reduced by 17% to Rs 279.25 crore from Rs 336.41 crore in FY 20 on account of a fall in income from distribution of debt mutual funds as the clients shifted to liquidity funds due to fear of a crisis in markets due to the pandemic. PAT for FY21 reduced to Rs 45.1 crore from Rs 61.61 crore in FY20. The profitability margins have been strong throughout the last three fiscals.

The debt to equity ratio was 0.20x as of the end of FY21. Return on equity was 17.81%, 18.69%, 33.21%, and 47.15% respectively for 5 months ended 31^st Aug 21, FY21 , FY20, and FY19 respectively.

Table 1 - Financials and Ratios (Amount in Rs Crore)
Title	31-Aug-21	FY2021	FY2020	FY2019
Total Revenue	168.9	279.25	336.41	284.19
PAT	51.09	45.1	61.61	58.43
EBITDA	75.71	83.78	111.31	105.48
Total Assets	402.32	339.4	409.06	230.83
Cash generated from operations	63.88	2.89	160.21	101.88
EBITDA Margin	44.83%	30.00%	33.09%	37.12%
Net Margin	30.25%	16.15%	18.31%	20.56%

Valuation and Peer Comparison

The Issue is priced at 18.63x with annualized EPS of 12.30 as at end of 31^st Aug 2021 calculated at the upper price band of Rs 550 per share. P/E is 50.09 with an EPS of 10.98 as of the end of FY21.IIFL is listed as the peer of the Issuer and peer P/E is 28.58. The P/BV is 7.98x at NAV of 68.91 as of the end of 31^st Aug 2021 and peer P/BV is 4.64x.

Table 2 - Listed peer comparison
Particulars	IIFL	Anand Rathi
Face value per share	2	5
Total income for FY 21 (Cr)	1,659.02	279.25
EPS (as on 28 Nov 21)	51.85	29.52
NAV per share	321.77	68.91
Return on net worth	13.06%	_
P/E (As on 28 Nov 21)	28.58	18.63
P/B (As on 28 Nov 21)	4.64	7.98

Sector Outlook

Indian wealth management market is on a growth path given India’s long-term economic prospects, positive demographics, rising income levels, and current low penetration. The market is currently largely focused mainly on the urban segment, leaving the untapped majority of the Indian population. One should also keep in mind that many investors also prefer to invest directly without depending on the fund houses.

The Issue Snapshot

Anand Rathi Wealth Management launches its IPO on 2^nd Dec 2021. It is entirely an OFS amounting to Rs 660 crore. The price band is Rs 530-550 per share with a retail quota of 35%. One can invest with a minimum lot of 27 shares or Rs 14850. The Issue closes on 6^th Dec and is expected to list on 14^th Dec. 2021.

Conclusion and Investment Strategy

Anand Rathi Wealth management is focused on scaling a business by capitalizing on market opportunities and geographic expansion. The Issuer has a good financial history over the last three fiscals. The areas of concern are the presence of unlisted peers in the form of universal banks like Edelweiss, Kotak, Avendus, brokerage firms, and national distributors which also provide wealth management services that may affect its market share in the long run. Hence, considering all these factors, one may subscribe to this IPO for the short to medium term.

Reviewer recommends May Apply to the issue.

Review By CA Priyanka Choudhary on 24th Nov 2021

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.