Promoter’s tainted image weighs against the IPO.
In 2001, group founder Anand Rathi was restrained from holding any position as a member of the governing board or office bearer of any stock exchanges as well as any capital market related public institutions. In 2019, a `SEBI Order’ declared that Anand Rathi commodities Ltd (ARCL) was `not a fit and proper person’ to hold, directly or indirectly, the certificate of registration as commodity derivatives broker. Proceedings under relevant section of IPC and MPID Act are still pending against ARCL and its director Amit Rathi in connection with the NSEL scam.
In April 2021, NSE imposed a penalty of Rs. 8.29 Cr on Anand Rathi Share and Stock Brokers Ltd (ARSSBL). NSE ostensibly observed certain non-genuine trades in the F&O segment, declaring that ARSSBL is the trading member common on both sides of the reversal trades executed in a synchronized manner, and that the transactions involved were executed with the same companies namely, Anand Rathi Global Finance Ltd and Anand Rathi Wealth Ltd.
Further in 2021, certain minority shareholders of AR Digital Wealth Private Ltd (ARDWPL) have appealed to National Company Law Appellate Tribunal alleging amongst other things, (a) oppression and mismanagement; (b) that the respondents (Anand Rathi Wealth Ltd, its three subsidiaries, Anand Rathi, Amit Rathi, Rakesh Rawal and others) have acted against the interest of ARDWPL by transferring the investments held by ARDWPL in favour of Anand Rathi Wealth Ltd, wherein the petitioners are not shareholders; (c) that the petitioners have been kept away from the affairs of ARDWPL and (d) that the affairs of ARDWPL are being conducted as a sole proprietorship instead of a company.
In the so called disclosure era, perhaps, the regulators may not be able to stop market offenders from entering the capital markets. Nevertheless, the alleged omissions and commissions committed by the Anand Rathi Group in the past certainly cast shadow on the promoters’ credibility.
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ANAND RATHI WEALTH OFFER AT A GLANCE |
|
| Offer Type | Book Built |
| Platform | Main Frame |
| Offer Size | Rs 660 Cr |
| Fresh Issue | Nil |
| Offer for Sale | 1,20,00,000 equity shares (Rs 660Cr) |
| Face Value | Rs 5 |
| Price Band | Rs 530–550 |
| Mkt/Bid Lot | 27 Nos. |
| Implied M-Cap | Rs 2,288 Cr |
| Implied Equity Cap | Rs 21 Cr |
| Free Float | 51.18% |
| Lead Manager | Equirus Cap, BNP Paribas, IIFL Sec and Anand Rathi Advisors |
| Registrar | Link Intime |
| Listing | BSE, NSE |
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INDICATIVE ISSUE SCHEDULE |
|
| Opening :2-Dec-2021 | Closing :6-Dec-2021 |
| Allotment :9-Dec-2021 | Refunding :10-Dec-2021 |
| Demat Credit :13-Dec-2021 | Trading :14-Dec-2021 |
The Offer
The Mumbai-based Anand Rathi Wealth Ltd is going public with an offer for sale of 1,20,00,000 equity shares (valued Rs 660 Cr) from nine existing shareholders, including five promoter group shareholders. The offer is being made through the book-building route with a price band of Rs 530-550 for Rs 5 paid-up share.
Applicants for the IPO should bid for a minimum lot of 27 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE and NSE on Tuesday, December 14, 2021. Equirus Capital, BNP Paribas, IIFL Securities and Anand Rathi Advisors have been roped in as lead-managers to the offer. Link Intime will act as the registrar to the issue. The bidding opens on Thursday, December 2, 2021 and closes on Monday December 6, 2021.
The objects of the IPO are to carry out the Offer for Sale by the Selling Shareholders and achieve the benefits of listing on the stock exchanges.
Lineage
Anand Rathi Wealth (ARW) has been promoted by former BSE president Anand Rathi, his son-in-law Pradeep Gupta and their jointly-owned company Anand Rathi Financial Services Ltd (ARFSL). Anand Rathi is a gold medalist Chartered Accountant of November 1966 batch from the ICAI. Prior to floating his own group of companies, Rathi was a senior executive at Indian Rayon – the previous avatar of Aditya Birla Nuvo Ltd. He held the position of President of BSE for a truncated term and was one of the first directors of Central Depository Services Ltd.
Pradeep Gupta started his professional journey as a stock broker at Jaipur in 1992. He claims to have promoted Navratan Capital and Securities Private Ltd, presently known as Anand Rathi Share and Stock Brokers Ltd. He reportedly joined ARFSL (formerly known as Anand Rathi Securities Private Ltd) in the year 1998. ARW’s corporate promoter ARFSL was originally incorporated in 1996 and its main objects are to carry on business in shares and securities. ARFSL currently carries on the business of financial services, investment in securities of group companies and other companies besides distribution of financial products.
Coming to ARW, the company has adopted the inorganic route for its growth. In 2008, ARW entered into contractual arrangement with ARFSL to use their premises to commence overseas operations in Dubai. Same year, it expanded wealth operations in India by setting up office in Delhi. Even while ARW was aspiring to get into wealth management in a big way, the AuM of ARFSL’s wealth management business crossed Rs 5000 Cr in 2015.
ARW’s Subsidiary, AR Wealth Management Private Ltd, acquired Freedom Wealth Solutions Private Limited (involved in investment advisory business) and Freedom Intermediary Infrastructure Private Ltd in 2017. Same year, ARW acquired the mutual fund distribution business of Anand Rathi Advisors Ltd (ARAL) which ARAL had acquired from ARFSL. In 2017, ARW also acquired the private wealth management business of Religare Wealth Management Ltd.
Not only the promoters have frequently reorganized the group companies’ businesses but, they have also changed the names of the companies. For instance, the 26-year-old ARW has changed its name six times in 16 years between 2005 and 2021. Originally started as Hitkari Finvest Private Ltd in March 1995 the name was changed to AR Venture Funds Management Private Ltd in April 2005. The company was converted to public March 2007 but, it was converted back to a private limited company in July 2015. Two years later, it was once again converted to a public. Same year, the company was also renamed as Anand Rathi Wealth Services Ltd. In January this year the name has been changed to Anand Rathi Wealth Ltd. Between 1995 and 2019 the company has changed its registered office too as many as six times.
Though ARW’s genesis dates back to 1995, the company has commenced activities as an AMFI registered mutual fund distributor only in fiscal 2002. Strangely, the two and a half decade-old company has shown credible financial performance only for last four years.
Key Management
Despite their discredited track, Anand Rathi (75) and his son Amit Rathi (47) occupy the public company’s board as non-executive chairman and director respectively. Incidentally, before he was named in the NSEL scam Amit Rathi was the managing director of ARW. Co-promoter Pradeep Gupta (54) also holds non-executive directorship in ARW. Rakesh Rawal is designated as Executive Director and the Chief Executive Officer. He has reportedly been associated with the wealth management business of Anand Rathi Group since April 2007. Prior to joining ARW, he had worked with Deutsche Bank and Hindustan Lever.
Stakeholders
Of the equity of around Rs 21 cr, the promoter group of 15 shareholders control 74.74%. The balance 25.26% is held by 712 `public shareholders’ some of whom are relatives of the promoters. Post offer for sale, the selling shareholders Anand Rathi Financial would hold the largest chunk of 86.61 lakh shares (20.8%) followed by Anand Rathi 49.71 lakh (11.95%), Pradeep Gupta 19.02 lakh (4.57%), Amit Rathi 14.25 lakh (3.42%), Priti Pradeep Gupta 11.62 lakh (2.79%), Supriya Rathi 11.25 lakh (2.7%), Rawal Family Trust 5.12 lakh (1.23%), Jugal Mantri 1.05 lakh (0.25%0) and Feroze Azeez 7.29 lakh (1.75%). The residual cost of holding of the selling shareholders except Azeez works out to negative. After the lock in period of one year, even Azeez can sell the shares at Rs 70 each!
Business
ARW is presenting itself as one of the leading non-bank wealth solutions firms in the country and has been ranked among the three largest non-bank mutual fund distributors in India by gross commission earned. The company claims to serve a wide spectrum of clients through a mix of wealth solutions, financial product distribution and technology solutions.
The company acts as a mutual fund distributor, registered with the Association of Mutual Funds in India. It distributes mutual fund schemes managed by asset management companies and earns distribution commission. It purchases non-convertible market linked debentures (MLDs) and offers them to its clients and earns income from these sales.
Financial Track
The performance of ARW until fiscal 2017 was nothing to write about. Between fiscal 2018 and 2020 the company posted impressive financials. Gross revenue steadily increased to Rs 336 Cr on which it netted a profit of Rs 62 Cr in 2020. In fiscal 2021, revenue dropped to Rs 279 Cr and net profit dipped to Rs 45 Cr. Still worse, unlike the immediate past, the company experienced negative operating cash flow in fiscal 2021.
Even while profitability was down, the management went for a bonus issue which enlarged the equity capital 50% to Rs 20.81 cr.
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Anand Rathi Wealth Consolidated Financials (in Cr) |
|||||
| Year Ended |
Mar-21 |
Mar-20 | Mar-19 | Mar-18 |
Mar-17 |
| Gross Revenue |
279.25 |
336.42 | 284.19 | 223.72 |
42.54 |
| EBIDTA |
83.78 |
111.31 | 105.48 | 81.21 |
0.61 |
| EBIDTA % |
30.0 |
33.1 | 37.1 | 36.3 |
1.4 |
| Interest |
2.91 |
3.30 | 6.11 | 8.73 |
0.12 |
| Depreciation |
17.29 |
21.05 | 16.27 | 5.18 |
1.03 |
| Net Profit |
45.10 |
61.61 | 58.43 | 46.08 |
-0.16 |
| Equity (Implied) |
20.81 |
13.51 | 13.45 | 13.44 |
13.05 |
| Reserves (Implied) |
265.99 |
172.01 | 110.48 | 64.92 |
-0.04 |
| Borrowing |
33.36 |
41.73 | 0.6 | 0.69 | 25.31 |
Valuation
ARW has put a price band of Rs 530-550 for Rs 5 paid up share. The cap price discounts the company’s fiscal 2021 earnings more than 50 times and book value 8 times which certainly looks on the higher side as compared to the company’s larger peer IIFL Wealth. What are the capital appreciation prospects? The promoters’ credibility issues will continue to haunt the stock till they are cleared off from all the pending cases.
Meanwhile investors can read a lot from the following two points. First, promoters are reducing their stake from a hefty 75% to a minority 49% through not fresh issue but direct offer for sale. Second, the entire promoter stake will become free of cost as their offer for sale amount will be much more than their whole investment cost. Thus, post lock-in period unless the profit improves considerably, the stock may encounter selling pressure.
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HOW ANAND RATHI COMPARES WITH LISTED PEER |
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| (Amount in Cr) |
Anand Rathi Wealth |
IIFL Wealth |
| Market Cap |
2289 |
13012 |
| Borrowing |
33 |
104 |
| Fixed Assets |
89 |
290 |
| Revenue |
265 |
1612 |
| Other Income |
14 |
47 |
| EBIDTA |
84 |
941 |
| Interest |
3 |
414 |
| Net Profit |
45 |
369 |
| Equity Cap |
21 |
18 |
| Reserves |
266 |
2974 |
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Stock Features |
||
| Current Price (Rs) |
550 |
1471 |
| Face Value (Rs) |
5 |
2 |
| Book Value |
68.91 |
338.28 |
| Promoter Stake % |
48.82 |
22.78 |
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Profitability |
||
| OPM % |
26.3 |
55.6 |
| Net Margin % |
16.1 |
22.3 |
| Earnings Per Share |
10.83 |
41.75 |
|
Return |
||
| RONW % |
15.7 |
12.3 |
| ROCE % |
20.8 |
29.0 |
|
Discounting |
||
| Price/Earnings |
50.8 |
35.2 |
| Price/Cash EPS |
36.7 |
31.6 |
| Price/Book Value |
8.0 |
4.4 |
| Price/EBIDTA |
27.3 |
13.8 |
| Price/Revenue |
8.6 |
8.1 |
|
Distribution |
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| Dividend % |
100 |
3500 |
| Yield % |
0.9 |
4.8 |
| Pay-out % |
30.7 |
167.7 |
Concern
- Any adverse outcome in the proceedings under relevant section of IPC and MPID Act that are pending against ARCL and Amit Rathi will have an adverse effect on the reputation of the Anand Rathi Group, which could adversely affect the share price of the public company.