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Research
Angel Broking - IPO Note - YES Securities
Posted On : 2020-09-21 17:32:36( TIMEZONE : IST )
Key positives:
- Company is amongst the top brokers when measured in terms of no of active clients with NSE (fourth largest) and incremental NSE active clients in Q1 FY21 (second largest). This is in a market where competition from discount broking companies such as Zerodha, 5 Paisa Capital and many others is at peak.
- Significantly outperformed industry in terms of client additions with share in incremental demat accounts increasing from 4.2% in FY18 to 14.7% in Q1 FY21. More than 50% of customer addition happening online and more than two-third clients acquired from tier 2 and tier 3+ towns.
- Gained market share across segments in the past three years: Retail F&O 2.9% in FY18 to 7.8% in Q1 FY21, Retail cash from 8.5% to 17.3% and retail commodity from 8.8% to 24.6%.
- Has shifted from being a traditional branch model to online model over the last couple of years with minimal revenue contribution from franchisees now. 5 online platforms have been created to offer services.
- Capability to increase the margin funding business will improve post the fund raising from the current IPO.
- Company is looking to increase the share of distribution business significantly over the next couple of years as the Angel BEE app moves from testing phase to commercial operations.
- Healthy dividend track record of ~30% payout.
Key negatives:
- Declining trend in revenues and profits over the past three years. This was primarily on the back of company's strategy to shift from the traditional branch business model to online model.
- High level of competition in the industry can restrict future growth opportunities.
About the issue:
Fresh Issue Rs300 Cr - for working capital (for margin funding business) and other corporate purposes, Offer for sale Rs300cr, Total 19.7mn shares, Post issue market cap Rs2,500cr
Valuation:
On FY20 and Q1 FY21 annualized EPS, the stock at upper price band will trade at P/E of 27x and 12x respectively. Multiples are similar to ICICI Securities, which is a much larger player but has a much higher dependence on the branch model. Profitability measured in terms of RoE was at 48% for ICICI Securities, whereas Angel was at 13.9%.
