Prudent Corporate Advisory’s SIP-led AUM growth offsets regulatory yield reset

Investment View and Valuation

Motilal Oswal Financial Services reviewed Prudent Corporate Advisory’s 1QFY27 results on July 27, 2026. The broker retained its Neutral rating and raised its FY27E and FY28E earnings estimates by 7 per cent and 8 per cent, respectively.

The estimate increases reflect a lower commission ratio following recent regulatory changes, partly offset by lower revenue-yield assumptions and higher employee costs in line with management guidance. The target price was raised to Rs 3,260, based on 37 times FY28E EPS, versus a CMP of Rs 2,851, implying 14 per cent upside.

1QFY27 Financial Performance

Prudent reported 1QFY27 revenue from operations of about Rs 3,536 million, up 18 per cent year on year and down 4 per cent quarter on quarter, broadly in line with Motilal Oswal’s estimate. Commission and fee income grew 18 per cent year on year to about Rs 3,508 million.

PAT was primarily ahead of estimates because operating expenses were lower than expected. EBITDA margin improved to 25.6 per cent from 22.9 per cent in 1QFY26, while PAT margin expanded to 21.5 per cent from 17.6 per cent in 1QFY26 and 16.4 per cent in 4QFY26.

AUM Growth and Distribution Momentum

Core distribution momentum remained healthy. Quarterly average AUM rose 21 per cent year on year and 4 per cent quarter on quarter to Rs 1.3 trillion in 1QFY27. July 2026 trends indicated AUM of about Rs 1.4 trillion.

Equity AUM, which constituted 97 per cent of closing AUM, increased 18 per cent year on year and 16 per cent quarter on quarter, supported by SIP inflows and the recent Indus acquisition. Monthly SIP flows improved to about Rs 12 billion from Rs 10 billion a year earlier, while market share was maintained at about 3.6 per cent. Alternative-assets AUM, including PMS, AIF and related products, was about Rs 19 billion, up 37 per cent year on year.

Mutual Fund Monetisation and Yield Outlook

Regulatory changes implemented from April 2026 affected mutual fund monetisation. Mutual fund revenue rose 17.9 per cent year on year, slower than the 20.8 per cent growth in quarterly average AUM. Gross yield declined by about 2.8 basis points quarter on quarter to 88 basis points.

Motilal Oswal views 1QFY27 margins as the new steady state, but expects yields to decline gradually by 1 to 2 basis points over the medium term because of competitive pressure on new business. Management stated that new-business yields remain higher than those of the existing book and expects the 88-basis-point gross yield to be sustainable.

Management also said the one-time commission reset arising from GST-related changes and the removal of the 5-basis-point exit load from total expense ratio are complete.

Insurance and Other Business Segments

Insurance was another growth driver, with total insurance premium reaching Rs 1.9 billion, up 34 per cent year on year. Life premiums rose 29 per cent to Rs 1.4 billion, while general insurance premiums increased 45 per cent to Rs 547 million.

• Fresh life premiums rose 73 per cent, led by participating products and ULIPs.
• Health insurance premiums increased 37 per cent.
• Stockbroking revenue increased 12 per cent year on year to Rs 56 million.
• Other financial and non-financial product revenue increased 28 per cent to Rs 102 million, helped by PMS and bond distribution.
• Other income was Rs 208 million, supported by mark-to-market gains on the treasury book.

Cost Trends and Earnings Outlook

Operating expenses grew 14 per cent year on year to Rs 2,586 million. Employee costs increased 33 per cent due to salary revisions, branch expansion, headcount growth and variable-pay provisions. Management expects employee costs, including ESOP expenses, to grow 22 to 24 per cent in FY27.

Motilal Oswal expects operating leverage and a lower commission ratio to support margin expansion over the medium term. It forecasts FY26 to FY28 revenue, EBITDA and PAT CAGR of 18 per cent, 23 per cent and 29 per cent, respectively.

Strategic Initiatives and Management Commentary

Management highlighted SIF AUM of over Rs 5 billion and about 1,326 certified distributors. It expects faster adoption following simplified certification norms, with monthly SIF business growing faster than the mutual fund business.