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ICICI Securities Report
Investment Rationale:
Prudent Corporate Advisory Services Ltd. is one of the leading mutual fund distributors in terms of average assets under management of Rs 560 billion as of March 2023 and commission received of Rs 5 billion as of FY23.
This is achieved through 26,949 mutual fund distributors across the country as on March-23 which is a source of competitive advantage. Stock based business model and growing AUM have resulted in revenue/earnings compound annual growth rate of 30%/54% between FY19- 23, strongly anchored by monthly systematic investment plan of Rs 5.2 billion and high equity mix of 93.5% as of FY23.
As distribution business successfully migrates to digital platform, foray into non-MF financial products promises future new business streams (Insurance based revenues have already reached Rs~700 million in FY23).
Risks include increasing direct mix within equity AUM and cut in yields if they are not able to pass on the same to the MFDs under them.
Key risks:
Regulatory risk: Prudent operates in a highly regulated business environment. Its business activities are subject to extensive supervision and regulation by the government and various regulatory authorities such as Securities and Exchange Board of India, Insurance Regulatory and Development Authority of India, Pension Fund Regulatory and Development Authority, Association of Mutual Funds in India, Real Estate (Regulation and Development) Act, depositories and stock exchanges.
Any change in regulation / non-compliance could impact Prudent's operations. For example, the recent consultation from SEBI proposed to lower the total expense ratio rates for asset management companies. This may impact the earnings of Prudent, if an adverse pass-on strategy is adopted by the AMCs affected by the TER cut.
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