Prudent Corporate Advisors IPO opens for subscription on 10 May 2022 and is scheduled to close on 12 May 2022. Like always, IPO Central is ready with its analysis of the upcoming IPO. Read on more for full Prudent Corporate IPO review.
Prudent Corporate Advisors is one of the largest independent retail wealth management services groups (excluding banks and brokers) in India and is amongst the top mutual fund distributors in terms of average assets under management (AAUM) and commission received. The company has established a countrywide network that currently serves 16,356 pin codes and are spread across 110 locations in 20 states. The company is associated as a distributor with 42 AMCs.
Prudent Corporate IPO Review – Strengths
- Leading independent financial products distribution platforms (amongst the top mutual fund distributors in terms of in terms of AAUM)
- The company operates in underpenetrated Indian asset management industry
- Retail AUM mix skewed towards high-yield equity AUM
- Long-standing and growing relationship with distributors
- Pan-India (20 states) diversified distribution network with ability to expand into underpenetrated B-30 markets
- Scalable, asset-light and cash generative business model
- Experienced management team and backed by a global investor
Prudent Corporate IPO Analysis – Risk Factors
- Prudent Corporate Advisors operates in a highly regulated environment which is subject to change
- Reduction in commission or brokerage of financial products could have adverse effect
- Direct investments in mutual funds by existing/potential clients will have an adverse impact on its revenues from mutual fund distribution
- Significant dependence on selected mutual funds (top-5 MFs contribute 50.77% of revenues)
Prudent Corporate IPO Analysis – Financial Performance
| Â | FY2019 | FY2020 | FY2021 | 9M FY2022 |
| Revenue | 225.1 | 236.2 | 294.9 | 328.0 |
| Expenses | 194.5 | 198.8 | 234.4 | 250.3 |
| Net income | 20.9 | 27.4 | 45.4 | 57.5 |
| Margin (%) | 9.3 | 11.6 | 15.4 | 17.5 |
Prudent Corporate Valuations & Margins
| FY2019 | FY2020 | FY2021 | 9M FY2022 | |
| EPS | 5.08 | 6.73 | 10.94 | 13.94 |
| PE ratio | – | – | 54.39 – 57.59 | – |
| RONW (%) | 25.30 | 24.75 | 28.73 | 26.83 |
| ROCE (%) | 25.30 | 24.75 | 28.73 | 26.83 |
| EBITDA (%) | 17.21 | 19.87 | 21.61 | 25.37 |
| Debt/Equity | 0.28 | 0.07 | 0.02 | 0.15 |
| NAV | – | – | 38.13 | 51.95 |
Prudent Corporate IPO Review – Should you invest?
Started in 2003, Prudent initially focused on distributing mutual funds itself before transforming itself into a platform to help other distributors. Currently, nearly 90% of its revenues come from B2B operations (channel partners) while the legacy distribution business accounts for only 10%.
Prudent is among the biggest in its trade and as of 31 December 2021, it offered wealth management services to 13,51,274 retail investors through 23,262 channel partners. The company offers various digital wealth management platforms like FundzBazar, PrudentConnect, Policyworld, Wisebasket and CreditBasket.
Prudent Corporate IPO Review – Revenue Visibility
Mutual fund investment, especially on the equity side, has gained traction in the last decade. Players like Prudent have been among the biggest beneficiaries of this trend. The company’s equity AUM increased from INR13,865.8 crore in FY2018 to INR44,605.9 crore as on 31 December 2021, growing at a CAGR of 36.49%. As of 31 December 2021, its monthly SIP flows stood at INR386.7 crore providing tremendous visibility of monthly inflows.
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% and 32.5% respectively for the five year period ending FY2021. Its market share as of FY2021 stood at 12% within the national distributor segment on AAUM basis.
Another positive, often overlooked, is the company’s long standing relationship with its distributors. Over 50% of its distributors are associated with the company for over 5 years. This loyalty is because of the cost-effective services Prudent offers to its distributors and is unlikely to change in a hurry.
Prudent Corporate IPO Review – Valuations
In terms of valuations, the price band of INR595 – 630 per share and its FY2021 EPS of INR10.94 translate to a PE ratio range of 54.39 – 57.59. Now this may appear on the higher side but things change when latest nine month earnings are taken into consideration.
The EPS of INR13.94 for nine months of FY2022 indicates that the company is likely to earn INR18.59 in full FY2022. This means that the price band puts a PE valuation of 32.01 – 33.89 which is a much better range considering the company’s robust growth in recent years. Its listed peer IIFL Wealth Management trades at a PE ratio of 41.9 even though its RONW at 13.1% is quite less than Prudent’s 28.7%.
Another peer worth mentioning is Anand Rathi Wealth which listed late last year. The stock trades at a lower PE multiple of 20.5 but its focus on HNI clients has resulted in revenue growth of just 14.2% in the last 3 years. On the other hand, Prudent’s retail focus offers it a distinct advantage.
Private equity investor Wagner Limited is selling half of its 40% equity stake in the IPO which is entirely an OFS. We generally don’t like pure OFS issues as the company doesn’t get any proceeds from the offer. However, Prudent operates an asset light business model with a lean balance sheet which doesn’t require growth capital going forward.
IPO Central’s interaction with the company management revealed that the company is likely to stay the course and doesn’t plan to venture into radically different lines. At the same time, it is open to earnings accretive or strategic acquisitions, like the takeover of Karvy Stock Broking’s mutual fund portfolio.
Overall, Prudent Corporate IPO review reveals a robust growth story in a structurally growing sector. Several positive factors like a lean balance sheet, robust revenue growth and stickiness in channel partners are visible in the grey market premium despite challenging market conditions.
Prudent Corporate IPO Review – Broker Calls
Anand Rathi – Subscribe for long term
Angel One – Neutral
Arihant Capital –
Ashika Research –
Asit C Mehta –
BP Wealth – Subscribe
Canara Bank Securities – Avoid
Choice Broking – Subscribe with caution
Elite Wealth – Neutral
Geojit –
GEPL Capital –
Hem Securities –
ICICIdirect –
IIFL Securities –
Jainam Broking – Subscribe
KR Choksey –
LKP Securities –
Marwadi Financial Services –
Motilal Oswal –
Nirmal Bang – Neutral
Reliance Securities –
Religare Broking –
Samco Securities – Avoid
Share India Securities –
SMC Global – 1.5/5
Systematix – Not rated
Ventura Securities – Not rated
