Prudent Corporate Advisory Services Ltd IPO

Published by Sharekhan Education | May 12, 2022

Prudent Corporate Advisory Services Ltd IPO

Amit Pathak | Sharekhan Education

Issue size: ₹ 508 -538 Cr

Price Band: ₹595 – ₹630

Issue opens on: Tuesday, 10th May’2022

Issue closes on: Thursday, 12th May’2022

Company Overview:

Prudent Corporate Advisory Services Ltd (PCASL) is a independent retail wealth management services group in India. It is a national distributor of Mutual Funds, Life & General Insurance products. PCASL one of the top ten mutual fund distributors in terms of average assets under management (AAUM). It offers digital wealth management solutions through platforms, namely FundzBazar, PrudentConnect, Policyworld, WiseBasket and CreditBasket. It has a country-wide network that serves 16,356 pin codes and is spread across 110 locations in 20 States across India.

Objectives of Issue:

The IPO is entirely Offer for Sale (OFS) of 8,549,340 equity shares.. Minimum application is to be made for 23 shares and in multiples thereon.  Post allotment, shares will be listed on BSE and NSE. Listing of the equity shares will result in the enhancement of brand name.

Industry Overview:

Over the last decade financial savings in India have grown from 31% to 41% as a percentage of net household savings. CRISIL expects the share of financial assets to increase over the next five years. The rise in financial assets will further boost investments under mutual funds and insurance. Overall, the financial market in India is expected to continue growing at a healthy pace owing to strong demand drivers, such as expected growth of the Indian economy, increasing urbanization and rising per capita income levels. Financial product distributors play a critical role in the financial ecosystem in India. The Indian retail financial products distribution industry grew at a CAGR of ~10% over last five years. PCASL operates in an underpenetrated Indian asset management industry.

Competitive Strengths:

PCASL has demonstrated a consistent track record of profitable growth due to a highly scalable, asset-light and cash generative business model. They have optimized costs by using a technology-led business model. As a result, their cost ratio has decreased from 86.42% in FY19 to 76.31% for 9MFY22. It has a track record of innovation and use of technology to improve investor and partner experience.

PCASL has a mix of physical and digital distribution model which allows them to selectively target markets for expansion, especially in Tier-2 and Tier-3 cities, which are comparatively underpenetrated, thereby representing significant growth potential. The company had 12% market share within the national distributor segment on AAUM basis as of FY 2021.

PCASL has a granular retail AUM base with a mix skewed towards high-yield equity AUM. Individual investors tend to stay invested for longer periods and prefer equity-oriented schemes, providing predictable, committed AUM to mutual funds and steady, recurring inflows for distributors as well.

Key Concerns:

PCASL operates in a highly regulated environment. The business activities are subject to extensive supervision and regulation by various regulatory authorities, such as SEBI, IRDAI, PFRDA, AMFI, RERA and the Stock Exchanges. The commission and fee income from distribution of mutual fund products contributed 84.49% of total revenue from operations in 9MFY22. If the AMCs reduce the total expense ratio due to regulatory changes, they may reduce distribution commission income, which would impact revenues.  Failure or disruption of Information Technology (IT) systems may adversely affect business. There is a outstanding SEBI litigation against Prudent Broking Services (PBS), which if determined in an adverse manner, may result in a loss of license of PBS.

Financials:

PCASL has grown it’s AUM at a CAGR of 32.8% between Mar 2018 and Dec 2021. It has grown its revenues and profits at a CAGR of 13.6% and 46.8% between FY19 and FY21 despite the adverse impact of Covid-19. It has delivered ROEs of 35.8% annualized for 9MFY22.

At the upper end of the price band 630 PCASL is offered at P/E of 33.9x its FY22 annualised earnings as compared to Anand Rathi which is trading at 20.5xFY22 earnings. On the basis of rich valuations, we are having a negative view on the company.

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