IPO Analysis: Prudent Corporate Advisory Services Ltd

IPO Rating: Invest for long term

About the issue:

The company is an independent retail wealth management services group in India and is amongst the top mutual fund distributors in terms of average assets under management and commission received. The company is coming out with its initial public offering (IPO) of equity shares of the face value of Rs 5 per equity share. The maiden offer comprises of offer for sale by existing shareholders of Rs 538.61 crore, according to its red herring prospectus. The price band of the issue has been fixed at Rs 595 to Rs 630 per equity share. The IPO opening date is May 10, 2022, and it will be closing on May 12, 2022. The issue will be listed on the exchange on May 23, 2022. The IPO market lot size is 23 shares. A retail-individual investor can apply for up to a maximum of 13 lots (299 shares or Rs 188,370).    

About the company:

Incorporated in 2003, Prudent Corporate Advisory Services Limited 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 offers digital wealth management (DWM) solutions through platforms, namely, FundzBazar, PrudentConnect, Policyworld, WiseBasket and CreditBasket.

Prudent Corporate Advisory Services provides investment and financial services platforms for the distribution of financial products through online and offline channels. Prudent Corporate Advisory Services is amongst the top 10 mutual fund distributors in terms of average assets under management AUM as of FY21.

As of December 31, 2021, Prudent Corporate Advisory Services 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. Prudent Corporate Advisory Services Limited is one of India's leading independent and fastest-growing financial services groups. The company has built a nationwide network, servicing 16,356 PIN codes. Prudent Corporate Advisory Services has 1,067 employees strength, 35.05 lakhs live folios and 15.25 lakhs live SIPs as of December 31, 2021.

Competitive Strengths:

• The company operate in an underpenetrated Indian asset management industry, that has grown at a CAGR of more than 20 per cent.
• Growing independent financial products distribution platforms.
• The company have a granular retail AUM with a mix skewed towards high-yield equity AUM.
• The value proposition has led to increased participation and a long-standing relationship with MFDs.
• The company have a track record of innovation and use of technology to improve investor and partner experience.
• Pan-India diversified distribution network with the ability to expand into underpenetrated B-30 markets.

Company Financials:

Company’s AUM has increased from Rs 166,677.52 million as of March 31, 2018 to Rs 484,114.74 million as of December 31, 2021, at a CAGR of 32.83 per cent. The company had a ROCE of 26.83 per cent for nine months ended December 21 as against 25.3 per cent in FY19.

 Below is the summary of financial information:

Recommendation:

The company offers a technology-enabled, comprehensive investment and financial services platform with end-to-end solutions critical for financial products distribution and presence across both online and offline channels. According to the CRISIL report, it grew faster among national distributors (amongst the top 10 mutual fund distributors) in terms of commission and AAUM with a CAGR of 34.4 per cent and 32.5 per cent, respectively for the five-year period ending Fiscal 2021. It is an independent platform with no single asset management company AMC contributing more than 15 per cent of our AUM as of December 31, 2021.

Its retail focus has helped grow the number of systematic investment plans (“SIPs”) handled by it from 0.79 million as of April 1, 2018 to 1.53 million as of December 31, 2021. Correspondingly, equity AUM from SIPs increased from Rs 40,384.66 million (representing 29.08 per cent of its total equity AUM) as of March 31, 2018 to Rs 189,499.09 million (representing 42.48 per cent of its total equity AUM) as of December 31, 2021.

Mutual fund assets in India have seen robust growth, especially in recent years, 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. The financial sector is expected to grow extensively in future. Company’s mix of physical and digital model allows us to selectively target markets for expansion, especially in Tier 2 or Tier 3 cities, which are comparatively underpenetrated, thereby representing significant growth potential.

The issue is completely an offer for sale by existing promoter as there will be no fresh issue. This may be cause of worry for some investors. However, the financials look stable, and the finance sector as a whole appears attractive. We recommend to invest in the scrip with a long-term perspective.