Anand Rathi Wealth Q2 FY27 Earnings Call: Record Net Flows Rs. 4,186 Cr, Rs. 460 Cr PAT Guidance Intact (ANANDRATHI)

Record Flows Despite Market Drawdown; PAT Guidance on Track

• Q2 FY 2026-2027 net profit of Rs.122 crores (+22% YoY) — H1 FY 2026-2027 net profit at Rs.238 crores (+23% YoY); Q2 revenue of Rs.357 crores (+16% YoY) and H1 revenue of Rs.693 crores (+17% YoY).
• H1 FY 2026-2027 delivered 49% of the FY 2026-2027 revenue guidance (Rs.1,415 crores) and 52% of the PAT guidance (Rs.460 crores) — management affirmed the Rs.460 crore PAT guidance (implying 20-25% growth) remains unchanged.
• Highest-ever quarterly net flows of Rs.4,186 crores (+39% YoY vs Q2 FY 2025-2026) — including record equity mutual fund net flows of Rs.2,867 crores (+39% YoY).
• Non-cash charges of Rs.46 crore in Q2 FY 2026-2027 — versus zero in Q2 FY 2025-2026; management guided non-cash ESOP costs will reduce dramatically in FY 2027-2028, narrowing the PBT-to-net-profit gap.
• Client AUM attrition stayed low at 0.17% in Q2 FY 2026-2027 (0.26% in H1 FY 2026-2027); Private Wealth added 1,500 net client families over 12 months, taking the total to 14,309.
• Board declared an interim dividend of Rs.4 per share (post-bonus) — management also noted commencement of London operations and receipt of regulatory approvals for Gift City, India.
• Management highlighted >20% YoY PAT growth every quarter since listing in Dec 2021 — achieved despite a challenging market environment.

AUM Crosses Rs.1.08 Lakh Cr; Target Flagged as Volatile

• AUM crossed 1.08 lakh crore in Q2 FY 2026-2027, up 18% YoY — but declined 1.5-2% for the quarter as net flows of Rs.4,000 crore only partially offset an estimated Rs.2,000 crore mark-to-market loss from a ~5% Nifty decline.
• Management guided an FY 2026-2027 AUM target of Rs.1.2 lakh crore — with a residual FY 2026-2027 net flow target of Rs.6,000-8,000 crore, including Rs.3,000-4,000 crore in H2 FY 2026-2027.
• Management flagged the AUM target as highly volatile — dependent on external market variables and single-day snapshots (30 Sep/31 Mar), with expressed uncertainty about achieving the Rs.1.2 lakh crore target.
• Q2 FY 2026-2027 net flows split 62% from existing clients and 38% from new clients — reflecting the strategy of starting clients small (e.g., Rs.1 crore) to prove merit, versus industry norms of Rs.5 crores.
• Primary MLD issuances of Rs.2,073 crore in Q2 FY 2026-2027 — with secondary MLD issuances of Rs.750 crore.

Four-Engine Strategy Through FY 2029-2030

• Strategic growth over the next 3-4 years (through FY 2029-2030) rests on four engines — client performance (if clients make 12% in FY 2026-2027, revenue grows 12% in FY 2027-2028), capacity utilization, capacity creation, and wallet penetration.
• Capacity utilization: current 431 RMs have capacity for 8,000 more clients — while the next 100 RMs have been identified for promotion over 1-1.5 years; wallet penetration targets over Rs.1 lakh crore AUM across 14,000 families.
• Alpha delivery is the core wallet-share driver — the firm's audited equity MF model portfolio delivered 198% alpha on Nifty and 100% alpha on NSE 500 over 13 years from June 2013, with a goal of beating benchmarks by 2-3% after fees; supported by 182 research personnel and ~900 wealth managers.
• 165 low-cost client acquisition events conducted in FY 2026-2027 — referrals historically contribute 50-70% of clientele; management targets a "destination model" within 3 years (by ~FY 2029-2030) relying solely on referrals and website leads, eliminating cold calling.
• Ultra HNI strategy focuses on "building" rather than "acquiring" clients — starting at Rs.5-10 crore AUM and growing to hundreds of crores; management explicitly values its advice at a 1% fee and refuses to compete on cost.
• Top 100 platinum clients hold an estimated 60-70% wallet share (some at 100%) — per Feroze Azeez for FY 2026-2027, with wealth defined as total assets; the company has never taken a check indirect from a client, i.e., no fee discounts based on AUM size.

PBT >40% Target; MLD Streak Broken but No Losses at Maturity

• Management targets PBT above 40% and PAT above 30% as ongoing targets for FY 2026-2027 — CFO Rajesh Bhutra confirmed margins are stable with no treasury risk.
• Management commits to reinvesting excess profitability (if PBT surpasses ~43-45%) into business verticals — rather than maximizing short-term operational leverage, aiming for sustainability over a 20-year horizon; technology costs expected to remain stable despite hiring four IITians for algorithmic research.
• The 1,190-product winning streak (Dec 2020 to May/Jun FY 2026-2027) was broken in Q1 FY 2026-2027 — some products delivered 6-7% vs. a 14-15% target; however, no MLD product has lost money at maturity since December 2012.
• 1,900 Anand Rathi structured products (MLDs) matured without losses over 14 years — Monte Carlo simulations predicted a 94% victory rate, with actual outcomes delivering 94-95%; the firm does not customize structured products, citing complexity of embedded derivatives and option Greeks.
• Structured products offer high agility — target returns can be adjusted (e.g., from 30% to 15%) and allocations switched between derivatives based on volatility and interest rates, mitigating long-term risk.
• Yields for the >Rs.50 crore HNI segment are marginally better than the Rs.5-50 crore segment — as of Q2 FY 2026-2027; the majority of the largest clients are homegrown, having initially invested Rs.2 crores and maintained relationships for over 15 years.

Digital Wealth Scaling; Gift City Entity on Q3 FY27 Timeline

• Digital Wealth (B2B2C) AUM grew 14-15% YoY to Rs.2,531 crores — with 7,584 clients (+15%); the OFA SaaS platform had 6,898 subscribers.
• Gift City operating entity expected to be operational and launch two funds by Q3 FY 2026-2027 — with a formal update expected in the January (Q3) results.
• Subsidiary Anand Rathi Wealth FME received in-principle IFSCA approval in July 2024 — the platform will offer the India-centric proposition (mutual funds, structured products) to NRIs in a more tax-efficient manner.
• Management has not provisioned any Gift City revenue into its FY 2026-2027 guidance of ~25% PAT growth — intending to first validate the proof of concept through trial and error before incorporating Gift City revenue into formal targets.
• Gift City strategy focuses exclusively on inward remittances — prioritizing mastery of the Indian market over outward opportunities; the mutual fund license application is prepared and expected to be filed by October 20, 2026 (Q3 FY 2026-2027), with the planned AMC a wholly owned subsidiary of ARWL designed as a differentiated ("not me too") platform.

SEBI PMS Regularization Assessed as No Threat; Guidance Intact

• SEBI has regularized the use of PMS licenses for managing mutual fund portfolios — per Joint CEO Feroze Azeez, formalizing a trend where advisors had surrendered RIA licenses.
• Azeez assessed the regulation will be highly useful for Registered Investment Advisors (RIAs) — as PMS platforms facilitate fee collection with autonomy, reducing client friction during market downturns.
• The CEO explicitly confirmed the regulation poses no competitive threat to Anand Rathi Wealth's business model — arguing the PMS discretionary mandate model holds limited appeal for HNI mutual fund clients due to low transaction frequency (approx. twice a year) versus active equity trading.
• FY 2026-2027 guidance of Rs.1,415 crores revenue and Rs.460 crores PAT remains unchanged — Feroze Azeez stated he would revise the PAT guidance down if near-term trends were concerning; the Rs.1.2 lakh crore AUM target remains subject to market volatility and single-day snapshot effects.
• Management views market volatility as manageable through relative outperformance — stating a client would still beat Nifty even if the market fell 50%; long-term business risk is mitigated by avoiding flamboyant spending and prioritizing reinvestment during periods of high profitability.