IIFL Wealth Management Ltd made its debut on the bourses, listing at ₹1,210 and hitting the upper circuit of 5%. Investors seem to be focusing on the potential of growth for wealth management firms in the country.
As it is among the first wealth management firms to be listed, investors seem to be comparing it with the two listed asset management firms -- HDFC Asset Management Company Ltd and Reliance Nippon Life Asset Management Company Ltd.
On that count, the valuation seems lower. At the current price, its shares are valued at price-earnings multiple of 28 times its FY19 earnings. This compares well to HDFC AMC’s 59 times and RNAM’s 30 times.
However, business models of asset management firms are not strictly comparable with IIFL Wealth. The company has its advisory platform, and also lends to high net worth individuals through an in-house NBFC.
IIFL Wealth, which has been formed by hiving off India Infoline Ltd’s wealth management business, now manages about ₹1.37 lakh crore in AUMs, including assets of ultra-high net worth individuals and high-net worth individuals, and family offices. Total assets under management have been rising, thanks to an improvement in financial savings in mutual funds, and alternative assets, and investment advisory.
A key to watch would be the impact of the regulatory changes on distributor-led business modes changing advisor-led trail fee models. This could impact earnings in the near term. Analysts expect 15% year on year decline in revenue and 26% decline in earnings in FY2020.
Besides, market conditions have become volatile lately and tend to have a direct bearing on the growth of wealth management business. “We find three key challenges for IIFL Wealth at the current juncture (1) sustaining inflows in the backdrop of volatility in capital markets (2) improving commissions in the new advisory model and (3) alignment of employee incentives to lower but more stable levels," said analysts at Kotak Securities Ltd in a note to clients.
A good thing is that its annuity business is expanding. Its share of annuity business that comprised 22% of its revenues in FY15 now comprises about 47% of its revenues, which brings more predictability to its revenues.