Business of Anand Rathi Wealth 💸
Making the rich get richer!
Anand Rathi Wealth Ltd is a prominent player in the financial services sector, boasting a rich legacy spanning over two decades. Founded on principles of integrity and innovation, the company has established itself as a trusted name in wealth management and investment banking.
With over 20 years of experience, Anand Rathi Wealth Ltd has earned a reputation for reliability. The company offers a comprehensive suite of financial services, including wealth management, investment banking, and advisory services.
Business of Anand Rathi Wealth
They are a leading non-bank wealth solutions firm in India, being ranked amongst the top three non-bank mutual fund distributors in the country. The company offers a wide product portfolio of wealth solutions, financial product distribution, and technology solutions to its clients.
Private Wealth Segment
This is the main vertical of the business. In this segment, the company caters to the HNI and UHNI (5 to 50 Crs).
As of FY24 this Private wealth vertical
AUM stood at Rs. 57,807 Crores.
It caters to 9,911 active client families.
Serviced by a team of 332 Relationship Managers.
**As of FY24, 60% of their clients have been associated with them for over 3 years, representing 79% of total PW AUM, which shows ARWL’s strength in vintage of both clients and their AUM
Digital Wealth Segment
This segment is a fin-tech extension of their proposition, to address the large mass affluent segment of the market with wealth solutions delivered through a ‘phygital channel’.
Customer Segment : Mass Affluent having existing financial assets: Rs. 10 lakhs – Rs. 5 crores
They have a unique approach to wealth solutions -
They deliver service through a ‘phygital channel’ i.e., a combination of human distributor (physical) empowered with technology (digital)
They seek to build a scalable and profitable model by using this blend of technology capabilities and human interface.
Also, attempts to build a partner led distribution through whom a packaged investment solution is delivered.
**As of FY24, It has an AUM of 1545 Crs and 4862 clients.
Omni Financial Advisor
This is the company’s strategic expansion for capturing the wealth management environment, which leverages technology to cater to the retail segment through a B2B2C model.
They also provide a technology platform to the Mutual Fund Distributors (MFDs) and to their clients. This is their target segment.
Why is this an advantage for OFA segment?
Small MFDs lack infrastructure and technology, so they provide them a Mobile led Tech - Infrastructure.
MFDs have Poor Client Engagement – Sell & Move on model, which OFA provides them with Client Reporting, Transaction & Engagement as a solution.
MFDs majorly struggle with Client Acquisition & Client Retention, here OFA provides Pre Sales – Sales – Post Sales enablers.
**As of FY24, this segment comprises 5,994 mutual fund distributors. This segment handles 20.6 lakh clients.
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What is Anand Rathi Wealth company’s MOAT?
They cater to HNI and Ultra-HNI which have a capital more than 50L-5Cr, 5Cr-50Cr and 50Cr+ segments these are people who need professional money management and don't want the hassle to individually invest or give their wealth to an individual to manage.
Here is where Anand Rathi comes into the picture they appoint Relationship managers who are well qualified CA, MBA, Financial Planners etc. which HNI’s love as they get personal attention and those managers work specially for them.
HNIs and UHNIs don’t mind shelling out 3-5% Portfolio management fees as they are ultra rich as well as its hassle free for them due to professionals managing their portfolio.
This is a huge blow on Smallcase/Mutual funds managers where people invest on the basis of low expense ratio etc.
It's a task for MF companies to keep it competitive to gain more traction. Hence Anand Rathi has an upper hand.
Lets talk about Growth Drivers in this Business
Major evolution that we notice happening in the country can be linked to this -
Rising mutual fund penetration in India.
Increasing affluent population & household income. (People are getting richer)
MF assets are expected to grow from Rs. 39 lakh crores (Mar 2023) to Rs. 455 lakh crores by Mar 2027.
Ultra HNI population projected to grow at 15.7% CAGR between 2022-27
Well-poised with diversified model, tech focus & strong industry tailwinds (Positive factor)
India has a huge scope of penetration towards professionally managed financial assets like mutual funds when compared to the global average, which is 4x of India.
This creates more opportunity for wealth management industry.
Financial analysis of the company
Anant Rathi has no surprise here. Yet again tremendous fast growing financials.
Here are the Q4 FY24 Financial performance :
Company is sitting at highest ever sales and highest ever profits at an OPM of 44%.
Last 1 year company has given a return of 330%.
ROCE & ROE: 48% and 38%.
Great news by company
The company boasts a final dividend of Rs. 9 per Equity Share of Face Value of Rs. 5 each of the Company (180% of FV)
Not just that but also approved a proposal to buyback upto 3,70,000 Equity Shares at Rs. 4,450 per equity share representing 0.88% of the total shareholding.
Guidance given for FY25
They have outperformed the FY24 guidance. Which is brilliant.
Now if they manage to hit 280Cr PAT for FY25 then their EPS would jump to the north of Rs 67 a share. After buyback it might even go till 70 EPS.
Now let’s do some interesting calculation.
How did I get to that EPS?
EPS = PAT/ Total outstanding shares 👉 EPS = 280/4.18 = Rs 67
Total Outstanding Shares = Market Cap/ Stock Price 👉 Outstanding shares = 17447/4171 = Approx. 4.18
How to get to the stock price valuation?
Now, The current PE is around 77 (which is high) and EPS is Rs 67.
The stock price should hit = PE*EPS = Rs 5,150
Current Market Price - Rs 4171.2
With some realistic PE contraction it should give about 7-10% from here.
My Anti-thesis
Valuations: Company is trading at a PE of 77, which is overvalued considering the fact that its into the wealth management space.
Price Action: The stock price had increased a lot in the last few months, 330% in 1 Year is a lot of returns. The price may consolidate for sometime before it starts its upward journey again.
Cyclicality: This sector is very much influenced by stock market performance as the AUM increases with increase in value of investments held.
Relationship Building: In this business one needs to interact with HNI and UHNI clients regarding investments and market scenario, any inefficiencies or inadequacy can cost the company big time as they HNI/UHNI move to different providers.
Guidance: Any change in revenue guidance, slowdown in economy, slowdown in demand can impact the company as there is not much margin of safety available.
Conclusion
In my view, Anant Rathi Wealth is a cash-cow and AUM kind of business with very high margins.
The Asset Management Company sectors itself are under-valued and have great potential for growth.
They generate healthy cashflows and even if they are stalling or not much growth, the money they generate is free cashflow.
The only concern is the PE ratio which is 77 but other than this everything looks great.
The company is run by able and proven management and exhibiting accelerated growth.
Finally, as long as they are making the rich get richer. The company will thrive.
I hope this write up helped you understand the business of Anant Rathi Wealth in a holistic manner. If you enjoyed reading this, learnt something and have any feedback or insights, please share by leaving a comment below 👇
Thank you for reading and keep learning.
Cheers,
Arjun.
The above fundamental analysis of the company is done by a lot of research and reading through Con-call transcripts, Balance sheets and Earnings calls.
Source for the above is Screener, Con-calls, Earnings Calls and Presentations.
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