Anand
Rathi Wealth is one of the leading non-bank wealth solutions firms in India and
has been ranked amongst one of the three largest non-bank mutual fund
distributors in India by gross commission earned in last three years. The
company serves a wide spectrum of clients through a mix of wealth
solutions, financial product distribution and technology solutions. The services
are provided primarily through flagship Private Wealth (PW) vertical. The
company overall manages Rs 30209 crore in AuM end August 2021.
The Company
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 trail basis from asset
management companies. It 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.
Anand
Rathi is the Promoter, Chairman and Non-Executive Director of the company.
Rakesh
Rawal is the Executive Director and the Chief Executive Officer of the company.
He has been associated with the wealth management business of Anand Rathi Group
since April 2007. He focusses on the business development and client
acquisition for the private wealth management business of the company
The
company has achieved a dominant position in the distribution of financial
products, with a focus on the growing HNI segment through an uncomplicated, holistic
and standardized offering, delivered through an entrepreneurial team of private
wealth professionals, known as Relationship Managers (RMs).
The
company commenced activities in FY2002 as an AMFI registered mutual fund
distributor and have evolved into providing, well researched solutions to its clients
by facilitating investments in financial instruments through an objective
driven process.
PW
vertical caters to 6,564 active client families, serviced by a team of 233 RMs
(including 8 RMs working on contractual basis) end August 2021. About 54.69% of
clients have been associated with the company for over 3 years, representing
73.55% of total PW AuM, which shows strength in 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.
The client
families have consistently grown with new family additions of 965 in FY2019,
863 in FY2020, 988 in FY2021 and 455 for the period ended August
2021. Correspondingly, PW AuM has also grown at a CAGR of 22.47% from Rs 18037 crore
end March 2019 to Rs 29472 crore end August 2021.
The company also facilitates estate planning, succession
planning and create wills as part of its core objectives, without charging any
cost to Clients. 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 private family trust.
The company has digitised operational process, including
opening of an account, client approvals and investment transactions and
on-boarding process. This has led to cost efficiencies and making execution
less cumbersome, more transparent and contributed to the growth of the Company.
The Client engagement and marketing efforts have also significantly converted
to digital with a move to a virtual process of meeting clients during the
pandemic and conducting official meetings and training with multiple
stakeholders.
In addition to PW vertical, the company has two other new age
technology led business verticals - Digital Wealth (DW) and Omni Financial
Advisors (OFA) aimed at creating a technology platform to acquire new clients
at lower cost as well as service and retain existing clients. These in-house
developed technologies, including mobile application for clients and partners
provides a ready platform to integrate with PW vertical in future as and when
required reducing time to market for a digital solution.
DW vertical addresses the large mass affluent segment (i.e.
group of individuals with financial assets between Rs 10 lakh to Rs 5 crore)
of the market with a wealth solution delivered through a phygital channel i.e.
a combination of human interface empowered with technology. Starting
September, 2016, DW vertical has seen encouraging results in its attempt to
build a Partner led distribution model. The AuM for DW vertical was Rs 738 crore
with 3,491 clients and 195 client engagement partners.
OFA vertical is another strategic extension for capturing the
wealth management landscape through which the company provides a technology
platform for Independent Financial Advisors (IFAs) to service their clients and
grow their business. Within a short period of over five years since its launch
in September 2016, it has become Indias leading technology platforms for IFAs
in terms of subscribers with 5,062 IFAs subscribing to IFA platform. These IFAs
handle around 1.63 million clients.
The
company has three subsidiaries 1. AR Digital Wealth (75.51% shareholding) is
engaged in business of distribution and sale of financial products, 2. Freedom
Wealth Solutions (95%) is engaged in business of providing consultancy of
wealth management services, wealth, financial, retirement and investment
planning, property management, will writing, property valuation and 3. Ffreedom
Intermediary Infrastructure (100%) is tech platform for Mutual Fund
Distributors and provides a technology platform for Independent Financial
Advisors and mutual fund distributors (MFDs).
The company aims to focus on increasing RM count with a focus
on higher vintage RMs, scaling
business by capitalizing on current market opportunities and through geographic
expansion and brand-building efforts with an increased digital focus.
The
Offer and the Objects
The
initial public offer (IPO) consists entirely of a offer of sale (OFS) comprising
issuing 1.20 crore equity share to raise Rs 635.38 crore at lower price band of
Rs 530 and Rs 659.38 crore at upper price band of Rs 550.
The
issue is to be made through the book-building process and will open on 02
December 2021 and will close on 06 December 2021.
The
company expects to receive the benefits of listing of the Equity Shares,
including to enhance visibility and brand image among existing and potential
customers.
Among
the promoters, Anand Rathi Financial Services has offered 92.85 lakh equity
shares for sale, while Anand Rathi and Pradeep Gupta have offered 3.75 lakh
equity share each for sale. Among promoters group, Amit Rathi and Priti Gupta
have offered 3.75 lakh equity share each for sale.
The
promoters and promoter group shareholding at 74.74% would decline post issue to
48.82%.
Strengths
The
company is focused on the underserved and less price sensitive HNI segment. PW
vertical focuses on the HNI segment with AuM potential of Rs 5-50 crore, who
are seeking quality and value addition rather than low cost solutions.
The HNI
segment of clients is the most attractive and underserved segment in terms of
the quality of service.
The number of active client families with respect to PW
vertical stood at 6564 end August 2021, with 54.69% of Clients being associated
for a period of over 3 years.
Uncomplicated,
holistic and standardized solutions are offered to clients based on an
objective-driven approach
The model
portfolios are created using in-house research and analytical tools.
The
company is one of the leading non-bank mutual fund distributor in India coupled
with presence in Non-Convertible Market Linked Debentures. The company is the
third largest mutual fund distributor on the basis of the gross commission earned
by non-bank MFDs.
The
company is also focusing on value added services such as estate planning,
succession planning and creating wills without any cost to Clients. It
safeguards and enables smooth transmission of wealth, which brings effective
long-term relationship with the Clients.
The
company is focused towards attracting and retaining talent through an
entrepreneurial work culture.
Being
the leading MFD, the company expects to benefit from underpenetrated mutual
fund industry with mutual fund AUM to GDP at 16.0% in 2020, as compared to a
global average of 63%. Further, India accounts for less than 2% of the global
mutual fund industry, representing a significant growth opportunity.
The
continuous shift in savings from physical assets to financial assets would
benefit the wealth management sector. The reduction in bank deposit rates in
the past year has further led to a shift in investment to mutual funds and the
stock markets. The implementation of various reforms is likely to shift
informal sectors into the formal economy. The share of financial assets in the
total investment pool is expected to rise to 63% by FY25 from 57% in FY20.
Some of
the key drivers of growth for wealth management industry are increasing
population of affluent clients with rising income levels, increase in wealth
allocated towards financial products, financial savings shifting to mutual
funds, low penetration and strong fundamentals, increased reach of mutual funds
beyond top 30 cities, retail participation increasing with rise in SIP
investments.
India
is expected to be the fourth largest private wealth market globally by 2028.
Weaknesses
The
continuing effect of the COVID-19 pandemic on business and operations is highly
uncertain and cannot be predicted. The company has witnessed decline in
revenues and profit in FY2021 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 COVID-19 pandemic.
The revenues from distribution and sale of financial products
are dependent on sustained ability to increase AuM as well as on the
performance of the funds distributed.
Any changes in the total expense ratio for mutual funds due
to regulatory changes may reduce distribution commission income which may have
a material adverse effect on business.
Anand Rathi Commodities (ARCL), one of promoter group entity
and its Directors are involved in a proceedings involved with SEBI and Economic
Offence Wing of Mumbai Police. Any adverse outcome in the aforesaid proceedings
would have an adverse effect on the brand and reputation of the Anand Rathi
Group.
The issue is entirely an OFS and the company will not receive
any proceeds from the Offer.
The distribution arrangement with AMCs can be terminated
without notice.
A significant portion of revenue at 34.01% came as mutual
fund distribution from asset management companies in FY2021.
The Company is dependent on Anand Rathi Global Finance
(ARGFL), one of Group Companies, for the business relating to the structured
products. Any change in the regulatory environment of non-banking financial
services may have an adverse impact on the business. The percentage of revenue
contributed by sale of structured products (market linked debentures) to the
overall revenue of the Company was 59.23% in FY2021.
The company operates in a highly regulated environment.
The business is highly dependent on management team and
Relationship Managers.
The business faces competition from existing and new market
participants and may affect market share.
An increase in direct investment in mutual funds by existing
as well as potential clients will have an adverse impact on revenue from mutual
fund distribution.
Valuation
Anand
Rathi Wealth is the leading non-bank associated mutual fund distributor and
leading wealth management company. The consolidated revenues of the company
declined 20% and net profit dipped 27% in FY2021, driven by the impact of covid
19 pandemic. The company achieved nearly two third of last years revenues at Rs
166.93 crore and crossed last years net profit at Rs 51.07 crore in the five
months ended August 2021.
The post issue book value (BV) of Anand Rathi Wealth is
Rs 68.9. P/BV works out to 8.0 times at the upper price band of Rs 550 per
share.
EPS of Anand
Rathi Wealth for FY2021 works out to Rs 10.8 and offer is made at PE of
50.8 times at upper price band of Rs 550. EPS for five months ended August 2021
works out to Rs 29.5 annualized and PE is 18.7 times.
The post issue m-cap for Anand Rathi Wealth works
out to Rs 2289 crore at upper price band. In terms of M-cap to AUM ratio, the
offer is made at 0.08 times.
IIFL Wealth Management which also includes its mutual fund
business is trading at 4.6 times its book value and PE of 34.8 times FY21 EPS
and 24.8 times H1FY2022 annualized EPS. In terms of M-cap to wealth management
AUM ratio, IIFL Wealth Management is trading at 0.06 times.
Anand
Rathi Wealth earns a significant portion of revenue at around 35% from mutual
fund distribution, while the company is also highly dependent on group company Anand
Rathi Global Finance for the business relating to the structured products sales
contributing around 60% of revenues.
Anand
Rathi Wealth: Issue highlights
|
For
Offer for Sale Offer size (in Rs crore)
|
|
-
On lower price band
|
635.38
|
-
On upper price band
|
659.38
|
Offer
size (in Shares crore)
|
1.20
|
Price
band (Rs)*
|
530-550
|
Minimum
Bid Lot (in no. of shares )
|
27
|
Post
issue capital (Rs crore)
|
|
-
On lower price band
|
20.81
|
-
On upper price band
|
20.81
|
Post-issue
promoter & Group shareholding (%)
|
48.8
|
Issue
open date
|
02-12-2021
|
Issue
closed date
|
06-12-2021
|
Listing
|
BSE, NSE
|
Rating
|
38/100
|
Anand
Rathi Wealth: Consolidated Financials
|
|
1903 (12)
|
2003 (12)
|
2103 (12)
|
2108 (5)
|
Sales
|
276.59
|
331.83
|
265.33
|
166.93
|
OPM
%
|
35.4
|
32.2
|
26.3
|
44.2
|
OP
|
97.88
|
106.72
|
69.86
|
73.74
|
Other
Income
|
7.60
|
4.59
|
13.92
|
1.98
|
PBDIT
|
105.48
|
111.31
|
83.78
|
75.71
|
Interest
|
6.11
|
3.30
|
2.91
|
0.86
|
PBDT
|
99.37
|
108.01
|
80.88
|
74.85
|
Depreciation
|
16.27
|
21.05
|
17.29
|
6.51
|
PBT
|
83.10
|
86.96
|
63.58
|
68.34
|
Tax
|
24.67
|
25.35
|
18.49
|
17.25
|
PAT
|
58.43
|
61.61
|
45.10
|
51.09
|
Minority
interest
|
-0.77
|
0.23
|
0.02
|
0.02
|
PAT
|
59.21
|
61.38
|
45.07
|
51.07
|
EPS
(Rs)*
|
14.2
|
14.7
|
10.8
|
29.5
|
*EPS
annualized is on post issue equity capital of Rs 20.81 crore of face value of
Rs 5 each
Figures in Rs crore
Source: Anand Rathi Wealth Issue Prospectus
|
|