Strong Client Acquisition And International Expansion Will Boost Future Prospects

Key Takeaways

• Strong year-on-year net flow increase suggests potential revenue growth via asset accumulation and client investment expansion.
  
• Geographic diversification via international expansion and shareholder incentives could enhance future revenue streams and market presence.
  
• Reinforcing growth over operating leverage might limit margin improvements amid competition, execution risks, and potential effects of prolonged higher interest rates on revenue.

Catalysts

Provides financial and insurance services in India.

• The company experienced a 69% year-on-year increase in total net flows during the first 9 months of FY '25, which reflects strong growth potential in revenue through increased client investments and AUM expansion.
  
• Anand Rathi Wealth's flagship Private Wealth business added 1,515 new client families, showing strong customer acquisition that can boost future revenue streams.
  
• The low client attrition rate of 0.28% indicates robust customer satisfaction, ensuring stable future revenue and potentially improving net margins by reducing the cost of acquiring new clients.
  
• Expansion plans into international markets, such as the establishment of a subsidiary in the U.K., point to potential revenue growth through geographic diversification.
  
• The company declared a 1:1 bonus share, reflecting a strategy to reward shareholders, which can attract more investors, indirectly boosting the stock’s liquidity and earnings per share in the long term.

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 ₹136.33) by about February 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 45.3x on those 2028 earnings, down from 54.3x today. This future PE is greater than the current PE for the IN Capital Markets industry at 21.1x.
• Analysts expect the number of shares outstanding to decline by 0.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.6%, as per the Simply Wall St company report.

Anand Rathi Wealth Future Earnings Per Share Growth

Risks

• The company's emphasis on reinvesting for growth rather than expanding operating leverage might limit improvements in operating margins, impacting earnings and profit margins.
  
• A potential delayed rate cut cycle could unfavorably affect the company's structured products, especially if higher interest rates persist longer than anticipated, impacting revenue.
  
• Increasing competition from passive funds and discount brokerage platforms could pressure margins and potentially reduce revenue and market share in the mutual fund distribution segment.
  
• The plan to expand into international markets such as the UK involves significant execution risk, which could strain resources and limit immediate profitability, affecting net margins.
  
• The company's reliance on market-neutral or consistent performance may become challenging to maintain if unexpected market conditions alter investment behavior, potentially affecting revenue stability and earnings.

Valuation

• The analysts have a consensus price target of ₹4250.0 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 45.3x, assuming you use a discount rate of 13.6%.
  
• Given the current share price of ₹3698.3, the analyst price target of ₹4250.0 is 13.0% 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.