The initial public offering of Prudent Corporate Advisory Services has garnered bids for 21.84 lakh shares against IPO size of 60.18 lakh shares, getting subscribed 36 percent on May 10, the first day of bidding.
Retail investors were at the fore as they bid for 72 percent of their quota, while the portion for non-institutional investors was subscribed two percent and that of employees 35 percent.
Qualified institutional buyers are yet to start bidding.
Half the issue size is for qualified institutional investors, 15 percent for non-institutional buyers and the rest 35 percent for retail investors. The price band for the offer, which closes on May 12, is Rs 595-630 per share.
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The IPO of the retail wealth management services provider sized at Rs 538.6 crore is an offer for sale by Wagner, an affiliate of US-based private equity investor TA Associates, and Shirish Patel.
The company has reserved shares worth Rs 6.5 crore for its employees who will receive those shares at a discount of Rs 59 per share to the final offer price.
On May 9, a day before the issue opening, Prudent mobilised Rs 159.43 crore from anchor investors including Societe Generale, DSP Mutual Fund, Axis Mutual Fund, Nippon Life, L&T Mutual Fund, and Motilal Oswal Mutual Fund. The allocation to anchor investors took place at the upper end of the price band.
"At the higher end of the price band of Rs 630, the issue is valued at price-to-earnings (P/E) of 33.9x on FY22E annualised earnings per share (EPS) and at price-to-sales (P/S) of 6.1x on annualised FY22 sales. Based on our quick forecast, EPS is expected to increase to Rs 21.6 per share by FY24 and thereby demanding valuation comes at P/E at 29xFY24E which seems stretched," Piyush Chajed, research analyst at Choice Broking, said in a report dated May 9.
At Choice, they believe the demanding valuation at Rs 2,608 crore is expensive leaving no margin of safety for investors. They assign ‘subscribe with caution’ rating to the issue.
Prudent, amongst the top mutual fund distributors by average assets under management (AAUM) and commission received, had mutual fund distribution business of Rs 48,411 crore as of December 2021, with 92 percent of its total AUM being equity oriented.
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The company derives significant share of business from commission and fee income which accounted for 97.8 percent of revenue in the first nine months of FY21. Income from distribution of mutual fund products contributed 84.9 percent, distribution of insurance products 7.3 percent, stock broking and allied services 4.7 percent and other financial and nonfinancial products 1.3 percent in the first nine months of FY22.
Operating revenue grew at a compound annual rate of 13.6 percent to Rs 286 crore over FY19-FY21 mainly driven by rising incremental investments by retail in equity mutual funds, Chajed said, adding during the period, the average EBITDA stood at 19.6 percent and average net profit margin at 12.4 percent. Return ratios also remained at a healthy level with average return on equity of 26.3 percent during the period.
The company has a highly scalable, asset-light and cash generative business model. In FY22, it is likely to post strong 50 percent growth year on year (on annualised sales), said Chajed.
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