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Prudent Corporate Advisory Services IPO opens today: Should you subscribe?

Brokerages are not positive about the IPO and don’t recommend that investors subscribe to the offer. However, for those who want to invest, the brokerages advise subscribing 'with caution'

May 10, 2022 / 09:17 AM IST
 
 
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Prudent Corporate Advisory Services is an independent retail wealth management services group in India. It is among the top mutual fund distributors in terms of average assets under management and commission received.

The Mumbai-based company, incorporated in 2003, deals in mutual fund products, life and general insurance solutions, stock broking services, asset allocation, and trading platforms. Prudent offers digital wealth management solutions through platforms such as FundzBazar, PrudentConnect, Policyworld, WiseBasket and CreditBasket.

The company’s assets under management (AUM) from the mutual fund distribution business stood at Rs 48,411 crore as of December 31, 2021. Over 92 percent of the AUM – or Rs 44,606 crore – was equity-oriented, representing 2.4 percent of the total equity AUM of the mutual fund sector.

The company’s initial public offering opens on May 10.

Features of the offer

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The Rs 538.61 crore IPO is entirely an offer for sale of up to 8.55 million shares by shareholders and promoters. The company will not get any of the proceeds.

Investor Wagner, a company incorporated and registered in Mauritius, will offer up to 8.28 million shares, or 50 percent of its holdings. Promoter Shirish Patel will sell up to 268,000 shares. Wagner holds a 40 percent stake in the company, while Patel has a 3.15 percent stake.

The public offer opens on May 10 and closes May 12. The company has set a price band of Rs 595-630 a share.

Investors can bid for a minimum of 23 equity shares and in multiples of 23 shares thereafter. The minimum investment for retail investors is Rs 14,490 for one lot and their maximum investment would be Rs 1,88,370 for 13 lots.

Half of the offer is reserved for qualified institutional buyers, 15 percent for non-institutional bidders and 35 percent for retail investors.

The stock will make its debut on the bourses on May 23.

Brokerage views

Brokerages are not quite positive about the IPO and do not recommend that investors ‘subscribe’ to the IPO. Even if an investor wants to apply, the brokerages’ advice is to ‘subscribe with caution.’

Choice Broking said that since 85 percent of the business comes from MF distribution, “the business is highly cyclical to equity market behaviour.”

The competitive intensity in financial product distribution has become more intense with the entry of fintech players.

“The company might face challenges in maintaining its margins at ~25% going forward,” Choice Broking said in a report. The brokerage said the demanding valuation is quite stretched.

“The demanding valuation at Rs 2,608 crore is expensive, leaving no margin of safety for investors,” Choice Broking said. Considering these parameters, it assigned a ‘subscribe with caution’ rating to the issue.

Marwadi Financial Services said the company’s key strengths are its consistent track record of profitable growth due to a highly scalable, asset-light and cash-generative business. It uses innovation and technology to improve investor and partner experience and has a growing independent financial products distribution platform. The company operates in an underpenetrated Indian asset management sector that has grown at a CAGR of more than 20 percent.

However, Marwadi finds the company’s valuation is on the higher side and not in favour of investors.

“Considering the FY21/FY22 (annualised) EPS of Rs.10.94/Rs.18.56 on a post-issue basis, the company is going to list at a P/E of 57.59x/33.95x with a market cap of Rs 2,608 crore, whereas its peers, namely IIFL Wealth Management and ICICI Securities are trading at PE of 27.3x and 12.6x.”

Its recommendation to investors is to ‘avoid’ this issue.

Angel One also finds the company’s valuation on the higher side. It is of the opinion that at the higher end of the price band, Prudent will trade at a P/E multiple of 34.0x its annualised EPS for 9MFY22 as compared to Anand Rathi, which trades at 20.5x FY22 earnings. It said Prudent has a very strong retail-focused business model, which provides it with a distinct competitive advantage and will be difficult to replicate.

“However valuations are on the higher side as compared to peers, which will limit gains in the near term and hence we have a NEUTRAL recommendation on the IPO,” the brokerage said.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before making any investment decisions.



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Gaurav Sharma
first published: May 10, 2022 09:17 am
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