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

Retail wealth management firm Prudent Corporate Advisory Services initial public offering (IPO) opens today. The three-day initial share-sale will open for public subscription today.

Prudent Corporate Advisory Services is one of the leading independent retail wealth management services group (excluding banks) in India and is amongst the top mutual fund distributors in terms of average assets under management and commission received. It offers a technology-enabled, comprehensive investment and financial services platform with end-to-end solutions critical for financial products distribution and has presence across both online and offline channels.

At present, investor Wagner owns 39.91 percent shareholding, and Shirish Patel, a Whole-time Director and Chief Executive Officer of the company, has 3.15 percent stake. At the upper end of the price band, the firm will raise around Rs 538.61 crore via IPO.

Price band

The company has set a price band of Rs 595-630 per share for its Rs 539-crore initial public offering (IPO).

The three-day initial share-sale will open for public subscription on May 10 and the bidding for anchor investors will open on May 9, according to the company.

The initial share-sale of 85,49,340 equity shares comprises an offer for sale of 82,81,340 equity shares by Wagner Ltd and up to 2,68,000 equity shares by Shirish Patel.

Objectives of IPO

The objectives of the Offer are to (i) to carry out the Offer for Sale; and (ii) achieve the benefits of listing the equity shares on the stock exchanges. The company expects that listing of the equity shares will enhance its its visibility and brand image and provide liquidity to its shareholders and will also provide a public market for the squity shares in India

Major business verticals

The major business verticals of the company are 1) Mutual Funds 2) Insurance 3) Broking

Overview

The Company is one of the largest and fastest growing financial products distribution platforms. AAUM has grown at a CAGR of 32.5 percent to Rs 249,100 million in the five year period from fiscal 2016 to fiscal 2021 while in the same period mutual funds distributors’ AAUM grew at an approximate CAGR of 12 percent andtouched Rs 10.19 trillion in Fiscal 2021 (Source: CRISIL Report)

As on December 31, 2021, the company's assets under management from the mutual fund distribution business stood at Rs 484,114.74 million with 92.14 percent of the total AUM being equity-oriented.

As per AMFI’s Commission Report of 2020-21, banks and national distributors are dominant in the mutual fund distribution industry, together accounting for Rs 6.55 trillion of AAUM in Fiscal 2021

The Company grew faster among national distributor (amongst the top 10 mutual fund distributors) in terms of commission and AAUM with a CAGR of 34.4 percent and 32.5percent respectively for the five year period ending fiscal 2021 (Source: CRISIL Report)

Track record of profitable growth

The company has consistent track record of profitable growth due to a highly scalable, asset light and cash generative business model. It has an experienced management team and is also backed by Wagner, a global investment firm who had invested in the company in the year 2019 and has been invested since then.

The company has focus on retail investors and SIP. The number of live SIPs on their platform being 1.53 million as of December 31, 2021, with the corresponding equity AUM from SIPs standing at 189499.09 million (representing 42.48 percent of the total equity-oriented mutual fund AUM) as of December 31, 2021. The number of active SIPs has increased from 0.79 million in Fiscal 2018 to 1.03 million in Fiscal 2021 to 1.53 million as of December 31, 2021.

Challenges

The industry in which the company is operating is highly competitive with new players entering very frequently. The sector is highly regulated and hence the company will always be subject to compliances to this regulations and there will be regulatory risk. The company has already stated some compliance risk which they are currently facing.

Due to high amount of competition, the company will always have to monitor their commission rates in order to ensure client retention. The mutual fund distribution service is a people centric field. The success of the company depends of retention of its mutual fund distributors.

The entire offer is an offer for sale. The valuation of the company is on the higher side.

Should you subscribe?

Jainam recommeds 'Subscribe'. It reasons, the financial penetration is expected to rise with the increase in financial literacy. The financial market in India is expected to continue growing at a healthy pace owing to strong demand- and supply-side drivers, such as expected growth of the Indian economy, increasing urbanization, increasing house hold savings, rising consumerism because of higher per capita incomes, and favorable changes, thereby indicating market growth potential for established financial service providers in India. Since the company is entering with a higher valuation is might be subject to corrections in near future. The parameters like new entrants, client retention ratio, new branches opened etc. needs to tracked.

BP Wealth: On the upper end of the price band, the issue is valued at a PE of 33.9x based on FY22 annualized earnings, which we believe is fairly priced. Hence, we recommend a "SUBSCRIBE" rating on this issue for the long term.

Hem Securities: The company is bringing the issue at price band of Rs 595-630 per share at p/e multiple of 45x on 9Months FY22 eps basis. The company being operative in an underpenetrated Indian asset management industry, that has grown at a CAGR of more than 20 percent. It has a pan-India diversified distribution network with ability to expand into underpenetrated B-30 markets. It has demonstrated a consistent track record of profitable growth due to a highly scalable, asset-light and cash generative business model.Hence we recommend “Subscribe” on issue for long term.