Prudent Corporate Advisory: Compare with peers before taking a call
The counter balance is the fact that the entire business barring the small business of insurance is continuous in nature and has a trail system of income
Prudent Corporate Advisory Services Ltd is tapping the markets with its offer for sale of 85.49 lakh shares in a price band of Rs 595-630. The issue which has a size of Rs538 crores would open on Tuesday (May 10) and close on Thursday (May 12). The company is primarily a distributor of products manufactured by mutual funds (MFs) and caters to authorised advisors (ARN) and also to individual investors directly. However, the bulk of its revenues come from the wholesale side of the business where it is catering to these representatives. The company gives around 50 per cent of the commission it earns to these representatives and provides the entire back-office support which is fairly automated at no extra cost. This ensures that people do not normally leave the company for seeking better pastures.
The company has increased its AUM from Rs 32,000 as of March 31st 2021 to Rs 48,000 crores at the end of December 21. There is a one-off item of acquisition of Rs 8,000 crores from Karvy at the end of November 21 at a cost of Rs 150 crores. This acquisition generates a revenue or yield of 65 basis points for Prudent. The company is currently the 3rd highest in terms of Retail AUM, 4th highest in total transactions and 5th highest in terms of total folios. The company serves as many as 16,356 pin codes, has 23,262 channel partners, 13.51 lakh clients, 35.05 lakh active folios. In terms of T-30 its AUM is 83.35 per cent while it is 16.65 per cent in B-30. Of the companies 110 branches, 60 are in the T-30 while 50 are in B-30.
The AUM is heavily skewed in favour of equities with 90.40 per cent being equities, 9.53 per cent is non-equity and the balance 0.07 per cent in ETF. The company launched stock broking activities on its platform 'Fundzbazar' in FY 2021. It is already present in providing products of other manufacturers in AIF and portfolio advisory services. Three years ago, it also began its activities in insurance space. Suffice to say that today Prudent is a one-stop shop for financial services and has an online presence for all its activities.
The ARN or authorised mutual fund representative is an important key for the company and its business activities. Roughly one in five agents in the country is registered with the company. This becomes the strength of the company in its business initiatives and future growth.
The company has earned an EPS of Rs 13.94 for the nine months ended December 21. Annualising the same for the 12 months and considering an additional income for the Rs 8,000 crore acquisition, the EPS for the full year 2021-22 would be around Rs 19.50. At this EPS the PE band is 30.5-32.30. The company has compared itself with two stock broking companies, CDSL and mutual fund manufacturers or AMC's. The business of Prudent is not comparable with these peer group companies as mentioned. The closest name that comes to mind is that of the recently listed Anand Rathi Wealth Limited. No two companies are identical in nature and this is the case with Prudent and Anand Rathi.
While Prudent is a distributor of mutual funds and almost its entire income comes from the distribution of such products, Anand Rathi derives roughly half its income from mutual funds and the balance from market linked debentures. The nature of products makes the income different. As is widely known, PE investors when exiting the company partly or totally through an offer for sale push the promoter to make maximum returns for themselves. The PE investor of Prudent is no exception and seems to have done the same. What remains on the table at the current PE is debatable.
While a comparison with the recently listed Anand Rathi may not be fully in place as business is not 100 per cent similar, it is still the closest. Considering the fact that the issue from Anand Rathi Wealth Limited which reported an EPS of Rs 30.18 for FY22 and is trading at a PE multiple of 20.84 is substantially lower, investors may form a valued opinion and make their own choice. The counter balance is the fact that the entire business barring the small business of insurance is continuous in nature and has a trail system of income. Compare before taking a call.
(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)
