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Prudent Corporate Advisory Services Ltd IPO – How should investors make an investment decision?

Prudent Corporate Advisory Services Ltd is a 19-year-old company operating in the field of wealth management and is ranked among the top mutual fund distributors in India. The company has adopted an advisory approach to mutual fund distribution. This has not only enabled more goal-based fund buying but also better customer penetration and wallet share of the customer. Its model is asset-light and hence scalable at short notice and with minimal costs. It operates under platforms like Fundbazar, PrudentConnect, Policyworld, WiseBasket, PruBazaar and Credit Basket. Through these platforms, Prudent enables the selling of equities, mutual funds, insurance policies and also loans and other liability products.

Prudent Corporate Advisory Services Ltd has a strategic investment from PE Fund Wagner. Its total AUM in the mutual funds business stands at around Rs.48,411 crore with a 92.14% exposure to equity funds, which ensures higher commissions. Nearly 18.5% of the ARN holders in India are registered with Prudent Corporate Advisory. Recently, Prudent acquired the entire portfolio of mutual fund distribution folios of Karvy Stock Broking Ltd, after the latter was barred from the stock markets. The issue is a total offer for sale.

Here are 3 important things that you must know about the Prudent Corporate Advisory Services Ltd IPO before deciding whether to apply or not.

  1. It has a complete suite of products including asset and liability products and tops it up with advisory services and execution. This provides a good platform to tap the vast number of millennials entering the financial markets.

  2. The latest acquisition of the fund distribution folios of Karvy Stock Broking will give them a strong franchise among the retail investors, especially in the South, where the market positioning of Karvy is specifically strong.

  3. Between 2015 and 2021, Prudent Corporate Advisory has increased its share of commission at a national level from 4% to 12%, largely on account of its strong retail and equity fund positioning. Prudent is strong in the B-30 markets.

Capital issue structuring for the Prudent Corporate Advisory Services Ltd IPO

  • Prudent Corporate Advisory Services IPO entails the issue of 85,49,340 shares in the price band of Rs.595 to Rs.630. Issue size at the upper price band works out to Rs.538.61 crore.

  • The entire issue of shares in the IPO will be by way of an offer for sale by the early investors. Among the investors offering shares in the OFS, Wagner will offer 82.81 lakh shares and director Shirish Patel 2.68 lakh shares.

  • Since both Wagner and Shirish Patel are not part of the promoter group, the promoter share of capital post issue will remain at 56.78% and the public share at 43.22%.

  • There is a small reservation for the employees of Prudent Corporate Advisory of around 113,835 shares, which at the upper band will be worth Rs.6.50 crore.

Application options for retail investors in Prudent Corporate Advisory IPO

The investor lot is 23 shares and in multiples of lots of 23 shares thereof. Check the table for different investment options available to the retail investor.

In short, the retail investors can start with the application of 1 lot of 23 shares and go all the way up to 13 lots (299 shares) worth Rs.188,370.

Prudent Corporate Advisory Services Ltd IPO – Key Financial Parameters

The company has consistently built its top line and bottom line on a consistent basis with the latest 9 months to Dec-21, improving EBITDA margins to 25.37%. The discounting of the price at current valuations on FY22 annualized earnings is around 33 times P/E, which is not too steep. However, this is a model that can see a lot of volumes and businesses gravitating to the larger players if consolidation deepens in the industry.

Prudent Corporate Advisory Services Ltd IPO – How should investors make an investment decision?

It is always advisable to consult with your financial advisor before taking an IPO investment decision. However, here are some factors to consider ahead of the IPO issue.

  1. Prudent Corporate Advisory Services combines the concept of a one-stop shop for financial services with smart advisory metrics, which makes the model extremely appealing to the millennial population.

  2. Commissions from mutual fund distribution account for 85% of the revenues of the company due to its predominance of equity fund AUM. With SIPs and MFs catching on in a big way, this model will be revenue accretive in future also.

  3. Prudent has seen its AAUM (average assets under management) grow at a CAGR of 32.5% consistently over the last five years. Prudent has about 1.53 million active SIPs on its platform, which is an assurance of steady commission flows and trail fees.

  4. Due to its distributed asset-light model, its expense ratio has fallen in the last 2 years from 86.4% to 76.3%. This provides more operating leverage for the business.

In terms of commission income for FY21, Prudent was at par with ICICI Securities but lower than NJ Finvest. The market cap of Rs.2,609 crore post listing, does make it a compelling proposition. Investors can look at this IPO from a longer-term perspective since valuations are not too expensive.

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