Anand Rathi Wealth IPO: Possible listing pop for investors

Anand Rathi Wealth IPO: Anand Rathi Wealth Limited is tapping the capital markets with its offer for sale of 1.2 crore shares in a price band of Rs 530-550. The issue opened on Thursday (December 2) and would close on Monday (December 6) 2021. Earlier, the company allotted 35,25,000 equity shares to 12 anchor investors comprising 19 entities.

The company allotted an equal 5,45,481 equity shares or 15.47 per cent to three anchor investors. They are SBI Mutual Fund, ICICI Prudential and Franklin Templeton. This was followed by an allotment of 4,63,644 shares or 1.15 per cent of the anchor allotment to DSP. The top four anchor investors were allotted 21,00,087 equity shares or 59.56 per cent of the anchor book. The entire anchor book is to domestic funds.

The company is into the business of wealth management and over the last three years has been the third highest gross commission earner from sale of mutual fund distribution. The company has an AUM (assets under management) of Rs 30,209 as on March 31, 2021. This has been growing at a CAGR of 22.47 per cent. The company has 6,564 clients spread across India and one city in the Middle East, Dubai. The focus is on people and the business is driven by RM (relationship managers).

The company serves the fast-growing HNIs and has 32.28 per cent of the clients in the Rs50 lakhs to Rs5 crores bracket, 51.50 per cent in the Rs5 crores to Rs50 crores bracket and the balance 16.22 per cent in the Rs 50 crores plus bracket. The interesting part of the growth of these HNIs to ultra HNIs is the fact that they were HNIs when they onboarded the company and have since turned ultra HNIs. This implies that their wealth has grown in subsequent years or also the fact that as confidence grew, they invested more funds through the firm.

The breakup of the AUM is primarily of two components where the smaller part is mutual funds and the larger and dominant part is market linked debentures. The current ratio at the end of March 21 was roughly 1/3rd and 2/3rd and is progressively moving in favour of mutual funds. The target or stated objective is to move these two components closer to being 50:50. The yield on mutual funds is 0.89 per cent while the same on market linked debentures is between 2.3 per cent to 2.5 per cent.

The business model of Anand Rathi Wealth is quite clear where they offer process driven, standardised and well researched solution. They do not offer PMS services and therefore the returns for various clients are quite similar in nature. The company offers estate planning, succession planning which ensures client stickiness. The company has an internal team of lawyers who take care of legal issues and are not dependent on third party or external agencies.

While Covid-19 began poorly for almost all businesses it soon turned out and became positive with a shift to digital and increased use of technology. Where clients were used to transacting physically and filling up of forms which was tedious it now became a touch of a button. This helped in streamlining operations and increasing productivity of customers.

The business of wealth management is ensuring that the customers wealth is protected and earns the best returns for him. At the same time, it also means that the wealth management firm earns revenues on his AUM and ensures returns which are best in class. On the negative side, Anand Rathi commodities was one of the many amongst the leading brokerage houses who was implicated in the NSEL case.

Anand Rathi Wealth Limited has seen its performance move up significantly and, in the year, ended March 2021, it had earned an EPS of Rs 10.85 on a fully diluted basis for the year ended March 2021. Based on this EPS, the PE multiple for the issue is 48.85-50.69 times. The comparable PE for the company is that of IIFL Wealth Management Limited which trades at 35.77 times.

The company's performance has improved significantly in the first five months of the current year ended August 21 and the EPS for the five-month period is Rs12.25. If one were to annualise this EPS the same would be Rs29.4 for the full year ending March 2022. Based on this projected EPS, the PE band would reduce to 18.02-18.70. This would make the price multiple not only attractive but offer scope for appreciation post listing.

On the first day of the issue at the time of writing this article, the issue was subscribed 1.13 times overall with the Retail portion subscribed 1.84 times. There are 2.55 lakh applications received so far. There is activity in the grey market which ensures that there would be listing pop available for lucky investors who get allotment.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)