A Growing Client Base And Global Expansion Will Strengthen Future Prospects

Key Takeaways

• Robust client addition and low attrition rates indicate potential revenue growth through long-term client relationships and increased assets under management.
  
• Expanding internationally and into digital wealth platforms offers diversification and growth opportunities beyond the core Indian market.
  
• Reinvesting leverage in growth projects over margin improvements may affect earnings, with high valuations and reliance on few clients adding risk.

Catalysts

Provides financial and insurance services in India.

• Anand Rathi Wealth's robust client addition and low attrition rates suggest potential for increased revenue through long-term client relationships and continued growth in AUM. This consistent client growth is likely to enhance revenue over time.
  
• Expanding international presence, such as the planned subsidiary in the U.K., presents an opportunity for revenue diversification and growth beyond the Indian market. This can potentially boost future revenue streams.
  
• The company's strategic focus on reinvestment over operating leverage indicates plans to ensure sustained revenue growth and business longevity. This can lead to stable earnings growth as the business scales.
  
• Strong growth in net flows, particularly in equity mutual fund net flows, and high contributions from new and existing client families suggest continued revenue growth potential as asset allocations increase.
  
• The expansion into digital wealth and SaaS platforms (OFA business) offers revenue diversification and potential higher margins through scalable business models.

Anand Rathi Wealth Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Anand Rathi Wealth's revenue will grow by 24.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 30.2% today to 31.6% in 3 years time.
• Analysts expect earnings to reach ₹5.6 billion (and earnings per share of ₹68.16) by about March 2028, up from ₹2.8 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 44.6x on those 2028 earnings, down from 50.1x today. This future PE is greater than the current PE for the IN Capital Markets industry at 18.8x.
• Analysts expect the number of shares outstanding to decline by 0.89% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.97%, as per the Simply Wall St company report.

Anand Rathi Wealth Future Earnings Per Share Growth

Risks

• The company's strategy of reinvesting operating leverage into growth projects rather than improving operational margins could affect potential earnings and net margins if growth expectations are not met.
  
• Market-dependent products like structured investments may face challenges if interest rates change adversely, which could impact revenue from these products.
  
• Given the company's growing AUM in equity mutual funds, any shifts in market trends favoring passive investments could affect future revenue and profit streams.
  
• High valuations compared to competitors could result in increased market scrutiny and volatility in the stock price, potentially impacting earnings stability.
  
• Dependency on a limited number of high-net-worth clients makes the company vulnerable to potential attrition, which could impact future revenue when attempting to achieve growth targets.

Valuation

• The analysts have a consensus price target of ₹2125.0 for Anand Rathi Wealth based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹17.9 billion, earnings will come to ₹5.6 billion, and it would be trading on a PE ratio of 44.6x, assuming you use a discount rate of 14.0%.
• Given the current share price of ₹1708.6, the analyst price target of ₹2125.0 is 19.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.