Operates in an underpenetrated industry that is witnessing high growth:
Mutual fund assets in India have seen robust growth driven by a growing investor
base on account of increasing penetration across geographies, strong growth in capital
markets, higher technology progress, and regulatory efforts aimed at making mutual
fund products more transparent and investor friendly. However, penetration levels
remained well below those in other developed and fast-growing peers. The ratio of
the equity mutual fund AUM-to-GDP in India at 6% is considerably low compared to
89% in the US, 78% in Canada, 50% in the UK, and 30% in Brazil. Further, along
with an increase in financial literacy, the relative outperformance of financial
assets over recent years, and the government’s efforts to fight the shadow
economy, will increase the share of financial assets as a proportion of net household
savings over the next 5 years.
Consistent track record of profitable growth due to a highly scalable, asset-light
and cash generative business model:
PCAS has a track record of strong financial performance and delivering returns to
shareholders. The company has a scalable and asset-light model. They have focused
on managing costs by using a technology-led business model. As a result, their cost
ratio, which is defined as the ratio of total expenses to total revenue, has decreased
from 86.42% in FY19 to 76.31% for the 9MFY21. In last couple of years, they have
created significant infrastructure in the form of digital assets, physical branch
presence, a wide mutual fund distribution (MFD) network as well as a large SIP base
which help them in generating operating leverage in their business operations.
Pan-India diversified distribution network with the ability to expand into underpenetrated
markets:
PCAS is one of the very few national distributors (non-bank) with a strong presence
in the B-30 market catering to retail investors in more than 16,356 pin codes across
India. Their AUM from the B-30 markets was Rs 2,525.03 crore representing 15.15%
of their total AUM as of March 31, 2018 and has grown at a CAGR of 36.20% to Rs
8,058.62 crore representing 16.65% of their total AUM as of December 31, 2021.
To add new offerings to the existing portfolio:
With an increase in financialization of investments and a greater understanding
of financial investments, there is significant potential to launch newer products
and enter into newer segments. In particular, certain asset classes are underpenetrated
among their customer base and they intend to leverage their analytics capabilities
to recommend customized products for their investor base. Apart from products distribution,
the company also wishes to strengthen its research and advisory offerings to their
partners and retail customers. They intend to expand the target customer base from
MFDs and underlying retail customers to the high-networth individuals and affluent
segments of wealth management.
Highly regulated industry:
The sector is highly regulated and hence the company will always be subject to compliances
and regulatory risk.
Highly competitive industry:
The industry in which the company is operating is highly competitive & disruptive
with new players entering very frequently.
The issue is purely an OFS:
The issue is purely an OFS and company will not get any capital from this issue.
All proceeds will go to such selling investors.
Incorporated in 2003, Prudent Corporate Advisory Services Ltd (PCAS) provides retail wealth management services. The company offers Mutual Fund products, Life and General Insurance solutions, Stock Broking services, SIP with Insurance, Gold Accumulation Plan, Asset Allocation, and Trading platforms. The company also offers digital wealth management (DWM) solutions through platforms, namely, FundzBazar, PrudentConnect, Policyworld, WiseBasket and CreditBasket. PCAS is amongst the top 10 mutual fund distributors in terms of average assets under management AUM as of FY21. As of December 31, 2021, PCAS provided wealth management services to 13,51,274 unique retail investors through 23,262 channel partners on the business-to-business-to-consumer (B2B2C) network, which is spread across 110 branches in 20 Indian states. The company is also associated as a distributor with 42 AMCs.
The company has highly scalable, asset-light and cash generative business model. The financial market in India is expected to continue growing at a healthy pace owing to key 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.
At the upper price band of Rs 630, the IPO is valued at 57x of FY21 EPS which does not leave much upside potential. Also, the issue is purely an OFS and company will not get any capital from this issue. All proceeds will go to such selling investors. Hence, we recommend investors to ‘AVOID’ subscribing to the IPO.
Use of Proceeds:
The total issue size is of Rs. 538 crore is fully an OFS constituting offer for
sale of 0.85 crore equity shares by investors. Company will not get any capital
from this issue. All proceeds will go to such selling investors.
Book running lead managers:
Axis Capital, ICICI Securities, Equirus Capital
Management:
Sanjay Shah is the Chairman and Managing Director of the company. He has been associated
with the company since its incorporation and has approximately 2 decades of experience
in wealth management. He is well supported by Shirish Patel, Whole-time Director
and the Chief Executive Officer of the company. He has been associated with the
company since December 1, 2005. He has been instrumental in business expansion and
has expanded the branch network from 5 to 105 branches as on date. Company’s management
team has extensive experience in the financial services sector.
Yr End March (Rs Cr) | FY19 | FY20 | FY21 |
---|---|---|---|
Net Sales | 222.00 | 235.00 | 287.00 |
Commission & Fees expense | 125.00 | 120.00 | 153.00 |
Employee Cost | 43.00 | 49.00 | 56.00 |
Other Expenses | 16.00 | 19.00 | 16.00 |
EBITDA | 38.00 | 47.00 | 62.00 |
EBITDA Margin | 17.00% | 20.00% | 22.00% |
Depreciation & Amortization | 8.00 | 8.00 | 8.00 |
EBIT | 30.00 | 39.00 | 54.00 |
Other Income | 3.00 | 1.00 | 8.00 |
Interest & Finance Charges | 4.00 | 3.00 | 2.00 |
Profit Before Tax - Before Exceptional | 29.00 | 37.00 | 60.00 |
Tax Expense | 8.00 | 9.00 | 15.00 |
Net profit for the year | 21.00 | 28.00 | 45.00 |
Net Profit Margin | 9.00% | 12.00% | 16.00% |