About Parag Parikh Financial Advisory Services Ltd. (PPFAS)

Parag Parikh Financial Advisory Services Limited (PPFAS) is a prominent investment advisory firm in India. Below is a comprehensive overview of the company:

1. Establishment: PPFAS was established in 1992 with the primary objective of offering advisory and transaction services on the Bombay Stock Exchange, later extending its services to the National Stock Exchange.

2. Business and Revenue Model: PPFAS operates as an investment advisory firm, providing services such as Portfolio Management Services (PMS) and sponsoring mutual fund schemes through its 100% subsidiary, PPFAS Asset Management Private Limited. The company's revenue is primarily derived from management fees associated with these services.

3. Management Team: The management team of PPFAS includes:

a) Neil Parikh: Director

b) Sahil Parikh: Director

c) Rajeev Thakkar: Director

d) Suneel Rashmikant Gautam: Director

These individuals have been instrumental in steering the company's strategic direction.

4. Financial Performance: For the fiscal years ending March 31, the consolidated financial performance is as follows:

a) FY23:

Total Income: ₹146 Cr

Profit After Tax (PAT): ₹76 Cr

b) FY24:

Total Income: ₹215 Cr

Profit After Tax (PAT): ₹109 Cr

These figures indicate a consistent growth trajectory in both income and profitability over the years.

5. Business Risks: PPFAS faces several inherent risks, including:

a) Market Volatility: Fluctuations in financial markets can impact the performance of managed portfolios and mutual fund schemes.

b) Regulatory Changes: Alterations in financial regulations can affect operational frameworks and compliance requirements.

c) Competition: The investment advisory sector is highly competitive, with numerous firms vying for market share.

6. Valuation of PPFAS Advisory Services Unlisted Shares

Holdco Discount for PPFAS Advisory Shares

Since PPFAS Advisory is a pure holding company that derives 100% of its income from PPFAS Asset Management, we need to apply a holding company discount to estimate the fair value at which you should acquire shares from existing investors.

Step 1: Calculate the Market Cap of PPFAS Asset Management

1. Revenue (FY24): ₹204 Cr
2. 
   
3. PAT (FY24): ₹102 Cr
4. 
   
5. Assuming a P/E multiple of 30x,
6. 
   
7. Market Cap of PPFAS Asset Management = ₹102 Cr × 30 = ₹3,000 Cr

Step 2: Apply Holdco Discount for PPFAS Advisory

Holding companies generally trade at a 20% to 50% discount due to:

1. Lack of direct operational control over the underlying business.
2. 
   
3. Structural inefficiencies such as tax implications on dividend flow.
4. 
   
5. Liquidity issues since holding company shares are often less liquid.
6. 
   
7. Market sentiment and control premium (if a significant stake is needed for control).

Industry-standard holdco discounts:

1. 20%-30% for a clean structure with direct ownership of the subsidiary.
2. 
   
3. 30%-50% if there are cross-holdings, multiple subsidiaries, or governance concerns.

Since PPFAS Advisory owns 100% of PPFAS Asset Management, it is a straightforward holding structure. Hence, a 20%-30% discount is reasonable.

Step 3: Valuation of PPFAS Advisory Shares

Applying a 30% holdco discount:

1. Fair value of PPFAS Advisory = ₹3,000 Cr × (1 - 30%)
2. = ₹2100 Cr

Thus, you should offer a valuation around ₹2000 Cr to ₹2100 Cr for PPFAS Advisory shares. So, accordingly, the Fair Value per share of PPFAS Advisory Service is ₹2500 to ₹2700 per share.

Valution of PPFAS Unlisted Share based on FY25 Numbers:

As per the latest presentation by PPFAS, their H1FY25 revenue stands at ₹214 crore, with a PAT of ₹118 crore. If we annualize these figures, they are projected to achieve a topline of approximately ₹400 crore and a PAT exceeding ₹200 crore for the full year. At a price of ₹6,000 per share, the market capitalization would be around ₹4,600 crore, translating to a P/E ratio of 23x, which appears to be fairly valued.