IPO Analysis: Anand Rathi Wealth Ltd

IPO Rating: Avoid  

About the issue:  

Anand Rathi Wealth is a registered mutual fund distributor and has been in the business of private wealth since 2002 primarily catering to the high-net-worth individuals (HNIs) and ultra HNIs (UHNIs). The company is coming out with its initial public offering (IPO) of equity shares of the face value of Rs 5 per equity share. The maiden offer comprises an offer for the sale of shares worth Rs 660 crore by existing investors, according to its red herring prospectus. The price band of the issue has been fixed at Rs 530 to Rs 550 per equity share. The IPO opening date is December 2, 2021, while it will be closing on December 6, 2021. The issue will be listed on the exchange on December 14, 2021. The IPO market lot size is 27 shares. A retail-individual investor can apply up to a maximum of 13 lots (351 shares or Rs 193,050). The objects of the offer are to achieve the benefits of listing the equity shares on the stock exchanges. 

Anand Rathi IPO Details: 

About the company:  

Anand Rathi Wealth is one of the leading non-bank wealth solutions firms in India and has been ranked amongst the top three non-bank mutual fund distributors in the country. The company offers a wide product portfolio of wealth solutions, financial product distribution, and technology solutions to its clients. The company provides services primarily through its flagship Private Wealth (PW) vertical where it manages Rs 294.72 billion in AuM as of August 31, 2021. The company's PW vertical caters to 6,564 active client families, through a team of 233 RMs. In addition to the PW vertical, the company has two other new-age technology-led business verticals, i.e., Digital Wealth (DW) and Omni Financial Advisors (OFA).  

The company has achieved a dominant position in the distribution of financial products, with a focus on the growing HNI segment. Currently, the company has a presence across 11 cities in India.  

Competitive Strengths:  

Focus on the underserved HNI segment of great market potential  

Standardized solutions offered to clients based on an objective-driven approach  

One of the top 3 leading mutual fund distributors in India  

Focus on value-added services  

Attracting and retaining talent through an entrepreneurial work culture  

Unique marketing initiatives  

Company Financials:  

The company’s focus on HNIs has led to the private wealth AuM growth at a CAGR of 20.17 per cent from Rs 180.37 billion as of March 31, 2019, to Rs 260.58 billion on March 31, 2021. In FY21 the revenue declined by about 20 per cent and the PAT declined by 26.8 per cent. Such decline in revenue from operations and profits was primarily due to the adverse effect of the COVID-19 pandemic, extended period of business disruptions, stock market volatility and decrease in investors’ sentiments for new investment in the initial phase of the pandemic. 

Recommendation:  

If we analyze from the overall industry perspective, the economic environment surrounding the company’s business looks attractive and full of opportunities. Assets managed by the Indian mutual fund industry have grown from Rs 24.70 trillion in March 2020 to Rs 32.17 trillion in March 2021. That represents a 30.20 per cent growth in assets over March 2020. Indians have relatively lesser exposure to equity and mutual fund instruments. Investment in a mutual fund can be direct or through a distributor such as Anand Rathi Wealth Ltd. In a direct investment, there are no charges while the distributor charges a certain percentage for investments.   

(Source- Association of Mutual Funds in India) 

We can see in the above chart that more than 50 per cent on an aggregate basis, investment is done through distributors, which augurs well for the company.  

The company’s AuM is the key factor driving its income. As of March 31, 2021, our total mutual fund AuM increased by 31.54 per cent to Rs 145.59 billion for Fiscal 2021 as compared to Rs 110.68 billion as of March 31, 2020. Its total AuM increased by 45.30 per cent to Rs 266.70 billion as of March 31, 2021, as compared to Rs 183.55 billion as of March 31, 2020.   

The management believes that the HNI segment of clients is the most attractive and underserved segment in terms of the quality of service, which provides a great opportunity. The company follows a process-driven approach in providing wealth solutions and aims to achieve consistent client outcomes through a standardized investment strategy which augments the RM’s ability to deliver our service proposition. It has a focus on value-added services. 

The financials of the company are looking good except for the covid hit pandemic year. The AuM has witnessed good traction in the last couple of years. However, the major concern of the issue is the sale of shares by existing promoters only. The pre-issue promoter shareholding stands at 74.73 per cent while the post issue shareholding stands at 48.82 per cent. The IPO objective is clearly for the benefits of listing.  

Considering all such factors, we recommend to AVOID investing in the IPO.