Motilal Oswal downgraded Anand Rathi Wealth to a ‘Sell’ rating after the company reported its earnings for the first quarter of FY26. The brokerage also cut the price target to Rs 1,700, looking at a downside of 21% over the upcoming 12 months. The miss on EBITDA, contraction in operating margin, and other factors contributed to the Sell recommendation.
Significant EBITDA miss
The company’s Q1FY27 operating results were much weaker than anticipated. The wealth management company reported an EBITDA of Rs 108.7 crore, a substantial miss of 27% against the estimated Rs 149.8 crore. On a year-on-year basis, EBITDA actually declined by 15%. While headline net profit appeared strong, it was heavily inflated by a massive one-time fair value gain of Rs 110 crore in other income rather than core business growth.
Sharp contraction in operating margins
EBITDA margins faced severe compression during the first quarter. The reported margin of 33.7% was a major drop from the 46.6% posted in Q1FY26 and fell far short of the analyst estimate of 44.5%. This unexpected pressure on profitability led the brokerage to slash its full-year FY27 EBITDA margin estimates by 563 basis points, indicating concerns regarding ongoing cost efficiency.
Declining flow momentum
The flow of new capital showed signs of deceleration during the quarter. Total quarterly net inflows fell by 28% year-on-year to Rs 2,740 crore. Specifically, equity mutual fund flows—a critical driver for the business—declined 4% YoY to Rs 1,900 crore. This marks the lowest level of equity flows the company has recorded since Q2FY25.
Elevated costs driven by ESOPs
Operating expenses surged 46% YoY to Rs 210 crore. This spike was primarily fuelled by employee benefits, which jumped 53% YoY to Rs 180 crore, exceeding estimates by 18%. This increase was largely attributed to one-time ESOP expenses. Consequently, Motilal Oswal revised its FY27 operating expense estimates upward by 10%.
Stretched valuations and downside risk
The leading reason for the downgrade is the stock’s current valuation, which analysts describe as “stretched”. Currently trading at a high price-to-earnings (P/E) multiple of 64.3x on FY28 earnings, Motilal Oswal believes the price has outpaced fundamentals. The brokerage said the one-year target price of Rs 1,700 implies a 21% potential downside, based on a more conservative valuation multiple of 50x FY28 EPS.
Anand Rathi Research share price performance
The share price of Anand Rathi Wealth has risen 3.75% in the last five trading sessions. The stock has increased 6.7% in the past one month. However, the stock has dropped 7.4% in the last six months. Anand Rathi Research’s share price has given a return of 32% over the previous 12 months.
Anand Rathi Q1FY27 results
The company has reported a 24% YoY rise in consolidated net profit to Rs 116 crore for Q1FY27, while revenue grew 18% to Rs 313 crore as the company crossed Rs 1 lakh crore in assets under management.
The company’s assets under management rose 21% YoY to Rs 1,06,300 crore, crossing the Rs 1 lakh crore mark during the quarter. Its net inflows came in at Rs 2,743 crore despite volatile market conditions.