Anand Rathi Share IPO — Should You Bid? Read DRChoksey's Report For Key Issue Details

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Deven Choksey Report

Anand Rathi Share and Stock Brokers Ltd. a part of 'Anand Rathi Group' will launch its initial public offering on Sept. 23 and concludes on Sept. 25. The Rs 745-crore, comprises entirely of fresh issue and no offer for sale. The face value of the equity share is Rs 5 each.

A full-service brokerage house in India has set a price band of Rs 393 to Rs 414 per equity share for the public issue.

Objects of the Offer

• Funding long-term working capital requirements of the Company

• General corporate purposes.

Nuvama Wealth Management Ltd., DAM Capital Advisors Ltd., Anand Rathi Advisors Ltd. are the book-running lead managers for the public issue.

Strategies:

Higher Focus on improving Average Revenue Per Client (ARPC) through cross-selling across investment solutions

The company aims to diversify its revenue stream through offering all its investment solutions broking, margin funding facility, and distribution of investment products, to enhance client convenience and loyalty. Further, it intends to increase its average revenue per client by substantially increase the MTF book, as it improves customer retention.

Moreover, the company plans to utilize machine learning to drive higher cross selling of investment products.

Strengthen market position by acquiring new clients and retaining existing clients, with a specific focus on Tier 2, Tier 3, and other cities

It plans to deploy a multi-channel approach, incorporating web and mobile-based trading apps, social media engagement, and targeted digital marketing campaigns, primarily to acquire new clients from Tier-2, Tier-3, and other cities.

Investing in Technology to Drive Business Excellence

The company plans to improve its focus on digital transformation for product development (introducing innovative offerings), driving higher operational efficiency (through automation, artificial intelligence (AI), and Generative AI (GenAI)), and for improving client user experience (using user-friendly platforms like TradeMobi, TradeExpress, and Trade X’Pro). It plans to utilize its infrastructure to ensure a smooth and efficient client experience by enabling seamless onboarding, trading, portfolio management, and query resolution.

Nurturing an entrepreneurial culture and expanding the Relationship Management team

The company aims to expand its relationship management team and foster an entrepreneurial culture that rewards innovation and performance, particularly by offering uncapped financial upside linked to revenue performance, and to recalibrate the organizational structure to increase the proportion of sales employees relative to service employees, to drive revenue growth and expand market share.

Outlook:

Anand Rathi Share and Stock Brokers, a part of “Anand Rathi Group”, is a full-service brokerage house in India, offering diverse range of solutions including broking, wealth management, distribution, lending, insurance broking, asset management, and investment banking, and caters to a variety of client base including retail investors, high-net-worth individuals, ultra-highnet-worth individuals, and institutions.

Over its operational history of three decades, it has built a broad base of ~221.5k active clients and ~886.6K registered clients (as of Mar’25), serviced through a multi-channel distribution network of 90 branches spanning across 54 Indian cities and a network of 1,125 Authorized Persons operating across 290 cities, and a robust suite of digital platforms. Among the broking industry, it has the highest average revenue per client of Rs 29,347 in FY25, driven by its mature customer base and personalized engagement approach.

Although its broking income remains anchored towards equity cash and derivative category, the company has supplemented its product offering including securities lending and IPO access. Moreover, it has made several strategic investments in digital platforms including TradeMobi, TradeExpress, Trade X’Pro, ARInvest, and MF Client, to improve client onboarding experience, and portfolio management.

Led by digital innovation with traditional client servicing strengths, the company has reinforced its competitive strength in the Indian broking industry, with revenue and net profit growth of 34.5% and 65.7% CAGR over FY23-25.

Through its initial issue, the Company plans to raise ~INR 7.5bn through fresh issue of equity shares, to fund its working capital requirement of Rs 5.5 billion for growing its MTF book and rest for general corporate purpose.

Anand Rathi Share and Stock Broker’s initial issue is priced at 25.1x TTM P/E, compared to 17.4x TTM P/E for Angel One and diversified peer average of 17.9x TTM P/E.

On comparing the financial performance and valuation of the Company with the peers, we believe the issue is fully priced in.

We believe the company to perform well, along with other brokers led by increasing financialization and higher retail participation trend in India. We assign a “Neutral” rating to the initial issue.

Risks:

Exposure to Cyber Security and Technical Compliance Failures:

Following a SEBI inspection in Jan’25, the Company has received a show cause notice regarding deficiencies related to the 'Cyber Security & Cyber Resilience Framework'. Specific issues observed include delays in reporting root cause analysis (RCA), failing to report an unauthorized access incident within the 6-hour required timeframe, absence of Board approval for the information security policy, inadequate password controls, and failure to implement adequate data leakage protection solutions. Adverse orders in these proceedings could harm the company’s reputation and financial stability.

Dependence on Broking and Margin Trading Facility (MTF) Revenue:

Broking revenue and interest on the MTF book, accounts for a significant portion of the overall revenues. Decline in market activities led by adverse external economic conditions, regulatory environment and macro factors can significantly impact its revenue from these segments, and in turn its operations and financial performance.

Exposure to Credit Risk Arising from Receivables:

The company is exposed to credit risk, particularly arising from its day-to-day operations and its lending activities, such as the Margin Trading Facility (MTF). Clients or counterparties may fail to meet their obligations, which can lead to significant financial losses and an increase in non-performing assets.

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