Angel Broking

Fourth largest stockbroker on NSE

Online start-ups offer technologically advanced offering at low cost and brokers backed by big institutions offer higher trust factor. Angel can get sand-witched between the two

CM RATING

40/100

Angel Broking is one of the largest retail broking houses in India in terms of active clients on NSE. Its a technology-led financial services company providing broking and advisory services, margin funding, loans against shares (through one of Subsidiaries, AFPL) and financial products distribution to clients under the brand ‘Angel Broking'.

The broking and allied services are offered through (i) online and digital platforms and (ii) network of over 11,000 Authorised Persons end June 2020. The company had more than 4.39 million downloads of Angel Broking mobile application and nearly 1 million downloads of Angel BEE mobile application end June 2020, which enable clients to avail services digitally.

Digital marketing has enabled Company to garner 398 million digital impressions in June 2020 on its various online and digital platforms. The customer outreach of the company spans across approximately 96.87% or 18,649 pin codes in India end June 2020. The company manages Rs 13254 crore in client assets and over 2.15 million operational broking accounts end June 2020. This widespread reach has enabled the company to enhance client base by 36.81% CAGR from 1.06 million in FY18 to 2.15 million end June 2020. The company is exhibiting a significant improvement in market share in incremental demat accounts from 4.16% in FY2018 to 10.55% in FY2020 and 14.72% in Q1FY2021. Over the last one year, the company has more than doubled overall turnover market share in the retail broking space in India.

On the basis of active clients on the NSE as of June 2020, Zerodha Broking has the largest share of 15.9% followed by ICICI Securities 9.2% and RKSV Securities 6.4%. Angel Broking is the fourth largest broker in terms of active clients on NSE with a market share of 6.29% end June 2020.

Dinesh D. Thakkar is the promoter and Chairman and Managing Director of the company with over 25 years of experience in the broking industry.

The primary focus of the company is to profitably grow retail broking, margin funding and distribution businesses through online and digital platforms, ‘Angel Broking Mobile App', ‘trade.angelbroking.com', ‘Angel SpeedPro', ‘Angel BEE', which are powered by ‘ARQ', a rule-based investment engine. The company provides broking services through various web, digital and .exe platforms, which are integrated with each other enabling clients to have a seamless trading and investment experience, positioning the company to benefit from the development of the Indian financial market, increased emphasis on digitalization, and growth in the returns from such financial investments.

The company provides a wide range of financial services to clients including and in relation to:

• Broking and Advisory: The company provides broking services across equity (cash-delivery, intra-day, futures and options), commodity and currency segments, along with debt products. The company facilitates participation of clients in initial public offerings undertaken by various companies. As a part of the broking and advisory services offering, the company also facilitate opening of demat accounts for clients. Company is a member of BSE, NSE, MSEI, MCX and NCDEX. To complement broking and advisory services, the company also provides research, investment advisory and investor education services.

• Other Financial Services: In addition to broking and advisory services, the company also provides some financial services that may enable clients to achieve their financial goals. (i) The company provides margin trading facility to clients for leveraging their eligible collaterals by funding their requirements on the cash delivery segment of equities. (ii) The company undertakes distribution of third-party financial products such as mutual funds, and health and life insurance products through both offline channels and digital platforms. (iii) Through Subsidiary, AFPL, which is registered as an NBFC, the company provides loans against shares to retail clients.

The company has posted consolidated revenue from operations at Rs 238.42 crore in Q1FY2021 and Rs 724.62 crore in FY2020. Further, profit from continuing operations stood at Rs 48.26 crore in Q1FY2021 and Rs 86.79 crore in FY2020. Return on net worth for equity shareholders (RoNW) was 7.4% (not annualised) in Q1FY2021 and 13.9% in FY2020.

Objects of the Offer

The initial public offer (IPO) consists of fresh issue of shares amounting to Rs 300 crore by issuing 0.984 crore shares at the lower band of Rs 305 per share (face value Rs 10 per share) and 0.980 crore shares at the upper band of Rs 306 per share.

Further, the offer of sale comprises of 0.980 – 0.984 crore shares aggregating up to Rs 300 crore. International Finance Corporation will be selling its share out of its holding of 1.29 crore sahres.

The issue is to be made through the book-building process and will open on 22 September 2020 and will close on 24 September 2020.

The net proceeds from the Fresh Issue will be utilised towards meeting working capital requirements and general corporate purposes. The company proposes to utilise Rs 230 crore of the Net Proceeds to meet working capital requirements.

The company expects to achieve the benefits of listing of the Equity Shares on the Stock Exchanges through enhancement of Company's brand name and the creation of a public market for the Equity Shares in India.

Strengths

The company is one of the largest retail broking houses with strong brand equity and reach to 96.87% or 18,649 pin codes in India. The company is well placed to capitalise on the expected growth in the broking sector in India due to advanced digital presence, and early mover advantage in providing broking, financial and advisory services through both, online and offline channels.

The company has strong capabilities to acquire customers through various diversified digital platforms. Based on average client additions in Q1FY21, 85.21% of clients have been acquired digitally.

The emphasis on providing clients with services through technological platforms has enabled to rationalise the costs on client services leading to cost-efficiencies and helped offer a simplified and most competitive pricing to clients and serve them with value added services like research and advisory at no additional cost, margin trading facility, securities as collateral and no fund transfer charges.

Diversified product offering across segments at competitive price is a unique proposition and makes the company one of the most competitive players across the industry.

The augmentation of digital processes, technological platforms, performance marketing, client engagement strategy, robust client acquisition and an all-inclusive flat pricing model has enabled to substantially grow the average daily turnover.

Risks

The company relies on broking and related services business for a substantial share of revenue and profitability. Brokerage income accounted for 61.3% of total income in FY2018, 66.8% in FY2020 and 72.2% in Q1FY2021, and is highly dependent upon the levels of activity in the securities markets in India. Any adverse change in global economic and political conditions may impact, amongst others, the volume of financial assets traded, the number of listed securities and liquidity of the listed securities.

The Indian securities industry is fragmented and typified by low barriers to entry. Accordingly, the company faces significant competition from companies seeking to attract clients' financial assets. Stock broking has become almost a commoditized business with constant pressure on pricing from online brokers. While online start-ups offer more technologically advanced offering at very low cost, brokers backed by big institutions offer higher trust factor. Brokers like Angel can get sand-witched between the two.

A significant portion of revenue and income from brokerage business is derived from relatively few clients. The company had approximately 2.15 million operational broking accounts end June 2020, of whom 0.81 million clients had traded on the exchanges in the preceding 12 months. The top 20% of active clients, being, 0.16 million of such active clients accounted for over 91.30% of income from brokerage income end June 2020.

The operation of businesses is highly dependent on information technology and the company is subject to risks arising from any failure of, or inadequacies in, IT systems.

The company sells third-party distribution products through employees as well as intermediaries. Any case of mis-selling, or recurring cases of mis-selling, could result in claims and fines against the company.

The company's business has high working capital requirements.

The outstanding borrowings (excluding lease liability payable over the period of the lease) of the company stand at Rs 648.09 crore end June 2020.

Valuation

The principal business of the company includes broking and advisory services, margin funding, and distribution of financial products. The brokerage income at Rs 503.91 crore accounted for 69.5% of total income in FY2020, up from Rs 478.46 crore at 62.6% of total income in FY2018.

Other revenue which includes interest from lending activities, income from depository operations, portfolio management services fees, income from distribution activity, membership fees from gym, personal training fees, surplus from cafeteria (net), income from software consultancy charges, interest on margin trading facility, interest received on fixed deposits with stock exchanges (current investment), profit on error trade, delayed payment charges accounted for rest of the total income have declined from Rs 285.82 crore in FY2018 to Rs 220.72 crore in FY2020.

The post-issue EPS for FY2020 works out to Rs 10.6. At the price band of Rs 305 to Rs 306, P/E works out to 28.8 times. Among comparable companies, ICICI Securities is trading at P/E (on FY2020 EPS) of 28.5x, IIFL Securities at 5.4x, Motilal Oswal Financial Services at 52.1x and Geojit Financial Services at 20.7x.