Anand Rathi Wealth IPO - Information Note

5paisa Research Team 5paisa Research Team 13th December 2022 - 06:26 am

Anand Rathi Wealth is a non-banking wealth management group that is affiliated to the Anand Rathi financial services business. Its focus has been largely on leveraging technology in both its verticals viz. Omni Wealth and Digital Wealth.

Anand Rathi Wealth had acquired the wealth management business of Religare Wealth in the year 2017.

As of August 2021, Anand Rathi Wealth manages a wealth AUM / AUA of over Rs.30,000 crore. It is one of the leading wealth advisors to the HNI clientele in the mutual funds advisory space.

It manages over 6,564 active client families with a team of over 233 relationship wealth managers. Anand Rathi Wealth largely focuses on the fast growing neo-affluent segment.

Key terms of the Anand Rathi Wealth IPO issues

Key IPO Details	Particulars	Key IPO Dates	Particulars
Nature of issue	Book Building	Issue Opens on	02-Dec-2021
Face value of share	Rs.5 per share	Issue Closes on	06-Dec-2021
IPO Price Band	Rs.530 - Rs.550	Basis of Allotment date	09-Dec-2021
Market Lot	27 shares	Refund Initiation date	10-Dec-2021
Retail Investment limit	13 Lots (351 shares)	Credit to Demat	13-Dec-2021
Retail limit - Value	Rs.193,050	IPO Listing date	14-Dec-2021
Fresh Issue Size	Nil	Pre issue promoter stake	74.74%
Offer for Sale Size	Rs.660 crore	Post issue promoters	50.62%
Total IPO Size	Rs.660 crore	Indicative valuation	Rs.2,289 crore
Listing on	BSE, NSE	HNI Quota	15%
QIB Quota	50%	Retail Quota	35%

_{Data Source: IPO Filings}

Here are some of the key merits of the Anand Rathi Wealth business model

1) Anand Rathi Wealth has tweaked its wealth management model to be technology savvy with a sharp omni-channel and digital focus.

2) For a wealth management company with AUM of over Rs.30,000 crore, the overall company valuation is just Rs.2,289 crore on indicative IPO upper band pricing.

3) The AUM and AUA does place Anand Rathi Wealth among the leading non-bank wealth advisors in India with substantial growing wealth franchise.

4) Anand Rathi Wealth has emerged among the top 3 mutual fund distributors and is likely to gain from the growth in the overall mutual fund AUM universe in India.

5) The company has solid financials in terms of revenue, AUM and assets growth, although FY2021 was an exception due to the lag effect of the pandemic.

6) The intent is to list the stock and get a better indicative valuation for the wealth franchise in the coming years

How is the Anand Rathi Wealth IPO structured?

The Anand Rathi Wealth IPO is a total offer for sale (OFS) and here is the gist of the offer

i) The OFS component will comprise the issue of 1,20,00,000 shares and at the upper price band of Rs.550, OFS value works out to Rs.660 crore.

ii) Out of the OFS of 120.00 lakh shares, promoters Anand Rathi, Pradeep Gupta and Anand Rathi Financial Services Ltd will sell will sell 3.75 lakh shares, 3.75 lakh shares and 92.85 lakh shares respectively. Balance shares will be sold by other investors.

iii) Post the offer for sale and the fresh issue, the promoter stake will come down from 74.74% to 50.62%. Public shareholding post-IPO will stand enhanced to 49.38%.

There will be no fresh funds coming into the company. The public issue is to give partial exit to promoters and early investors and to get the stock listed.

Key Financial parameters of Anand Rathi Wealth

Financial Parameters	Fiscal 2020-21	Fiscal 2019-20	Fiscal 2018-19
Sales Revenues	Rs.279.25 cr	Rs.336.41 cr	Rs.284.19 cr
Employee Costs	Rs.150.76 cr	Rs.166.57 cr	Rs.132.17 cr
Net Profit / (Loss)	Rs.45.07 cr	Rs.61.38 cr	Rs.59.21 cr
Diluted Earnings per share (EPS)	Rs.10.85	Rs.14.95	Rs.14.40
Net Profit Margins (NPM)	16.14%	18.25%	20.83%
Employee cost ratio	53.99%	49.51%	46.51%

_{Data Source: Company RHP}

Even if you factor for the COVID impact in FY21, Anand Rathi Wealth has a challenge in keeping manpower costs in check. That has consistently put pressure on the net margins of Anand Rathi Wealth and clearly, there is a challenge to boost the profit per employee, especially when you cater to the neo wealth segment.

Anand Rathi Wealth is expected to have a listing market cap of Rs.2,289 crore assigning a P/E ratio 51X on FY21 earnings. Assuming that FY22 sees reversal to median profits of pre-COVID period, the price will look more reasonable at 38X.

Investment Perspective for Anand Rathi Wealth IPO

Here is what investors must consider before investing in the Anand Rathi Wealth IPO.

a) With over Rs.30,000 crore of AUM and AUA combined, it gives a good exposure to the fast growing wealth management franchise in India.

b) Wealth management is likely to benefit from the rapid growth in equity cult and the mutual fund cult in India, as is evident from AMFI and NSDL data.

c) A digitally driven wealth advisory model is likely to be value accretive in the sense that it would enable scaling up without too much additional costs.

d) The company has strong and loyal customer franchise, especially in mutual fund advisory, which has stood in good stead.

e) Valuations are reasonable if you look at the wealth management franchise as a share of market cap to wealth AUM/AUA.

The challenge for the company is to revive its pre-COVID growth without letting costs soar. This will remain a challenge and also a risk factor. The franchise is good but it comes with inherent risks for the IPO investor.

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