Anand Rathi Wealth IPO — should you subscribe to it?

Half of the offer size is reserved for qualified institutional buyers, 15 percent for non-institutional investors and the remaining 35 percent of the offer for retail investors.
The minimum lot size is 27 equity shares and in multiples of 27 equity shares thereafter. Retail investors can invest a minimum of Rs 14,850 for one lot and a maximum investment of Rs 1,93,050 for 13 lots.

The share allotment will get finalised by December 9, 2021, and the unsuccessful investors will get refunds in their bank accounts by December 10, 2021, while successful investors will get shares in their demat accounts by December 13, 2021.
The trading in equity shares on the BSE and the NSE will commence with effect from December 14, 2021.

Anchor book

The company on December 1 mobilised Rs 193.87 crore from 19 anchor investors, ahead of its initial share sale. It allocated 35.25 lakh equity shares to anchor investors at a price of Rs 550 per share.

Out of the total allocation of 35.25 lakh equity shares to the anchor investors, as many as 31,58,022 equity shares were allocated to mutual funds through schemes amounting to Rs 173.69 crore.

Investors that participated in the anchor book are SBI Mutual Fund, ICICI Prudential, Franklin India Smaller Companies Fund, DSP Smallcap Fund, Kotak Mutual Fund, Canara Robeco Mutual Fund, Invesco India Tax Plan, Nippon Life, Abakkus Growth Fund-1, Quant Mutual Fund, and Cohesion MK Best Ideas.

Company brief

The company offers a wide product portfolio of wealth solutions, financial product distribution, and technology solutions to its clients primarily through its flagship Private Wealth (PW) vertical where it managed Rs 29,472 crore in AuM as on August 31, 2021. It catered to 6,564 active client families which were serviced by a team of 233 Relationship Managers.

The PW vertical of the company has grown at a CAGR of 22.47 percent from Rs 18,037 crore as of March 31, 2019, to Rs 29,472 crore on August 31, 2021.

In addition to the PW vertical, the company has two other new-age technology-led business verticals, namely Digital Wealth (DW) and Omni Financial Advisors (OFA).

The company reported a profit of Rs 45.09 crore in FY21, lower than Rs 61.61 crore in the previous year. Revenue also declined to Rs 265.33 crore from Rs 331.83 crore in the same period. Profit for the five-month period ended August 2021 stood at Rs 51.08 crore on revenue of Rs 166.92 crore.

What brokerages say

Most of the brokerages are positive about the company and recommends investors to 'subscribe' to the issue. The company has consciously avoided stockbroking and stock advisory businesses. It has rather focused on the high-yielding segments of distribution of structured products and mutual funds which has helped it generate higher revenue yields compared to competition, said a report from Nirmal Bang Securities.

The brokerage highlighted that the company’s business can get impacted by the volatility in securities markets, higher competition from existing and new players and the regulations from different financial bodies.

“At valuations of 18.7x Apr-Aug’21 annualized earnings, Anand Rathi Wealth does offer some scope for upside on listing, given ~20% earnings CAGR potential in the longer term combined with cross cycle ROE range of 20-30%,” the report from Nirmal Bang added, as it recommended subscribing to the issue.

The company is dependent on Anand Rathi Global Finance Limited (ARGFL), one of the group companies, for its structured products business. Any adversities faced by ARGFL can severely impact the performance of the company, said Marwadi Financial Services in its report.

It also highlighted that any loss of key team members (Relationship Managers) or the inability to attract or retain management personnel may have a material adverse effect on the business performance.

“Considering the FY22 annualized EPS of Rs 29.46 on post issue basis, the company is going to list at a P/E of 18.67x with a market cap of Rs 2,289 crore, while its peer namely IIFL Wealth Management is trading at P/E of 24.59x (FY22 annualized),” said the brokerage while assigning a ‘subscribe’ rating to the issue.

“The company has strong fundamentals, healthy return ratios and has recorded strong AUM growth. However, the pricing of the IPO is a tad expensive compared to its peers,” said a report from Arihant Capital Markets Ltd.

It advises investors to ‘subscribe for listing gains’ as the company has experienced negative cash flows in some prior periods and may do so in the future, which could have a material adverse effect on the business.

Additionally, some of the Promoter Group entities are involved in a similar line of business that may lead to real or potential conflicts of interest with the business, the brokerage highlighted.