Anand Rathi Wealth IPO review (May apply)

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Review By Dilip Davda on November 30, 2021

•    ARWL is one of the leading wealth solution firms in India. 
•    It has fared well except for FY21. The setback was on account of the pandemic.
•    This industry has bright prospects as stock markets are expected to fare well.
•    Prima facie the issue appears fully priced. 
•    Investment may be considered with a long term perspective.

PREFACE:
Off late we are witnessing a hurried way of bringing an IPO wherein very short time is given to analysts, media and other related parties to understand the IPO details. This company filed its ROC on November 29, 2021, did a roadshow on November 30, 2021, has an anchor book on December 01, 2021, and the IPO is opening on December 02, 2021. Is such a hurry necessary for any company? Surprisingly, here amidst such hurry, the company has come with its updated results till August 2021 end. We are set to see such activities in the coming few weeks. Just wait and watch. 

ABOUT COMPANY:
Anand Rathi Wealth Ltd. (ARWL) is one of the leading non-bank wealth solutions firms in India and have been ranked amongst one of the three largest non-bank mutual fund distributors in India by gross commission earned in Fiscal 2019, 2020 and 2021 (Source - CARE Advisory Research). The company serves a wide spectrum of clients through a mix of wealth solutions, financial product distribution and technology solutions. It provides services primarily through the flagship Private Wealth ("PW") vertical where it manages Rs. 294.72 billion in AUM as of August 31, 2021. 

It has a digitized operational process, including the opening of an account, client approvals and investment transactions and the on-boarding process. This has led to cost efficiencies and made execution less cumbersome, more transparent and contributed to the growth of the Company. As of the date of this Red Herring Prospectus, it has a dedicated in-house team of 4 specialists who are qualified lawyers and servicing clients across all locations to advise and create wills or designing and creation of the private family trust. In addition to PW vertical, it has two other new-age technology-led business verticals, i.e., Digital Wealth ("DW") and Omni Financial Advisors ("OFA").

ARWL: (a) acts as a mutual fund distributor, registered with the Association of Mutual Funds in India. It distributes mutual fund schemes managed by asset management companies and earns distribution commissions on a trial basis from asset management companies; (b) purchases non-convertible market linked debentures ("MLDs") and offers them to its clients and earns income from these sales. Therefore, the AUM of the Company comprises mutual fund schemes and other financial products such as bonds, MLDs and other securities held by clients in their own Demat accounts. 

Further, it does not include Demat holdings of the clients in the AUM unless the client has also used the distribution service of ARWL or have bought MLDs through ARWL. As per the industry practice, all such assets kept in the Demat account of the clients belong to the respective clients and indicate the value of their assets. Such assets are shown as the AUM of the Company. All decisions regarding the purchase and sale of mutual funds and other securities are taken by the clients. ARWL is not engaged in any portfolio management of its clients. Its Clients or active client families include client families/groups with at least Rs. 5 million in cumulative AUM. Each 'client family' or 'Client' may have one or more sub-accounts or family member accounts through which they invest.

As of August 31, 2021, PW vertical caters to 6,564 active client families, serviced by a team of 233 RMs (including 8 RMs working on a contractual basis). As of August 31, 2021, 54.69% of Clients have been associated with it for over 3 years, representing 73.55% of total PW AUM, which shows its strength in the vintage of both clients and their AUM in business. The company is currently present across 11 cities in India, namely, Mumbai, Bengaluru, Delhi, Gurugram, Hyderabad, Kolkata, Chennai, Pune, Chandigarh, Jodhpur and Noida and has a representative office in Dubai.

ISSUE DETAILS/ CAPITAL HISTORY:
For providing exit to some of its stakeholders and listing benefits, the company is coming out with a maiden IPO of 12000000 equity shares of Rs. 5 each with a price band of Rs. 530 - Rs. 550 per share to mobilize Rs. 660.00 cr. at the upper cap. The issue is opening for subscription on December 02, 2021, and will close on December 06, 2021. Share application is to be made for a minimum of 27 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 28.84% of the post issue paid-up capital of the company. 

Joint Book Running Lead Managers (BRLMs) to this offer are Equirus Capital Pvt. Ltd., BNP Paribas, IIFL Securities Ltd. and Anand Rathi Advisors Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue. ARWL has allocated 50% for QIBs, 15% for HNIs and 35% for the Retail investors.

Having issued initial equity at par, the company raised further equity in the price range of Rs. 25 to Rs. 411 per share between March 1999 and July 2021. It has also issued bonus shares in the ratio of 32 for 1 in August 2016 and 1 for 2 in July 2021. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 0.06, Rs. 0.19, Rs. 0.23, Rs. 108.51 / Rs. 3.33 and Rs. 233.14 per share. 

This being a pure secondary offer, post-IPO ARWL's paid-up capital will remain the same at Rs. 20.81 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 2288.89 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, ARWL has (on a consolidated basis) posted total income/net profits of Rs. 284.19 cr. / Rs. 58.43 cr. (FY19), Rs. 336.41 cr. / Rs. 61.61 cr. (FY20), Rs. 279.25 cr. / Rs. 45.10 cr. (FY21). On account of the pandemic, it suffered a setback for FY21. For the first five months of the current fiscal (FY22) ended on August 31, 2021, it has earned a net profit of Rs. 51.09 cr. on a total income of Rs. 168.90 cr. 

For the last three fiscals, it has posted an average EPS of Rs. 12.81 and an average RoNW of 28.33%. The issue is priced at a P/BV of 7.98 based on its NAV of Rs.68.91 as of August 31, 2021. 

If we attribute FY22 annualized earnings on post-issue equity, then the asking price is at a P/E of 18.67. Based on FY21 earnings, P/E stands at 50.73 and on an average of last three fiscal EPS basis, it comes to 42.94. The future will depend on the sustainability of its profit margins of FY22 5M. Prima facie the issue looks fully priced offer. 

COMPARISON WITH LISTED PEERS:
As per the offer document, ARWL has shown IIFL Wealth Management as its listed peer. It is currently trading at a P/E of 29.69 (as of November 30, 2021). However, they are not truly comparable on an apple to apple basis. 

DIVIDEND POLICY:
The company declared a dividend of 50% for FY21 as well as for the first five months of the current fiscal (FY22). It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORDS:
The four BRLMs associated with this offer have handled 28 public issues in the past three years, out of which 11 issues closed below the issue price on the listing date. 

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