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IPO analysis: Angel Broking

Shashikant Singh
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IPO analysis: Angel Broking

IPO Rating - Invest for listing gains

About the issue

Angel Broking, a Mumbai-based technology-led financial services company providing broking & advisory services in India, will hit the primary capital market with its initial public offer (IPO) of equity shares of the face value of Rs 10 each on September 22, 2020. The offer will close on September 24, 2020. The price band of the offer has been fixed at Rs 305 to Rs 306 per equity share.

The IPO consists of the equity shares of the company aggregating up to Rs 600 crore, comprising of a fresh issue aggregating up to Rs 300 crore, and an offer for sale aggregating up to Rs 300 crore. Bids can be made for a minimum of 49 equity shares and in multiples of 49 equity shares, thereafter.

The equity shares offered in this offer are proposed to be listed on both BSE and National Stock Exchange of India Limited (NSE).

Angel Broking IPO Details
IPO Date Sept 22, 2020 - Sept 24, 2020
Issue Type Book Built Issue IPO
Issue Size 19607842 Equity Shares of ₹10 (aggregating up to ₹600.00 crore)
Fresh Issue 9803921 Equity Shares of ₹10 (aggregating up to ₹300.00 crore)
Offer for Sale 9803921 Equity Shares of ₹10 (aggregating up to ₹300.00 Cr)
Face Value Rs 10 Per Equity Share
IPO Price Rs 305 to Rs 306 Per Equity Share
Market Lot 49 Shares
Min Order Quantity 49 Shares
Listing At BSE, NSE
Market Cap (Rs crore) 2503

 

About the company

Angel Broking is one of the largest independent full-service retail broking houses in India in terms of active clients on NSE as of June 30, 2020. Angel Broking is a technology-led financial services company that provides broking and advisory services, margin funding, loans against shares (through one of its subsidiaries-AFPL), and financial product distribution to its clients under the brand 'Angel Broking'. Its broking services are offered through (i) its online and digital platforms, and (ii) its network of more than 11,000 sub-brokers, as of June 30, 2020. Angel has more than 43,90,000 downloads of its Angel Broking mobile app and nearly 10,00,000 downloads of its Angel BEE app as of June 30, 2020, which enables its clients to avail services digitally. Their customer outreach spans across approximately 96.87 per cent or 18,649 pin codes in India as of June 30, 2020. Angel manages Rs 13,254 crore in client assets and over 2.15 million operational broking accounts as of June 30, 2020. The company’s primary focus is to profitably grow the retail broking, margin funding, and distribution businesses through its 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. Angel provides its broking services through the various web, digital and .exe platforms, which are integrated with each other, enabling its clients to have seamless trading and investment experience, positioning them to benefit from the development of the Indian financial market, increased emphasis on digitalisation, and growth in the returns from such financial investments.

The company’s principal business includes broking and advisory services, margin funding, and distribution of financial products, which are complemented by their research services and investment advisory.

Over the years, the company has been able to increase its market share in the broking business. Based on average daily turnover (ADTO), the company has continuously increased its market share in all the segments. Overall, in equity segment, it has increased from 3.24 per cent at the end of FY18 to 9.55 per cent for the month ending June 2020. Even in the commodity segment, its market share has increased from 8.82 per cent at the end of FY18 to 25.96 per cent at the end of June 2020.  

                                                                                                                                                                                (In Rs Crore)

  Period Ended Year Ended Period Ended Month Ended
Segment Q1 FY21 2020 2019 2018 Q4 FY20 Q3 FY20 Q2 FY20 Q1 FY20 June '20 May' 20 Apr' 20 Mar' 20
ADTO - Overall 61,894.50 41,323.80 16,808.70 12,310.30 58,201.80 45,007.00 35,826.80 25,317.60 82,885.00 54,120.00 44,446.00 42,590.00
Overall Equity Market share 8.23% 5.41% 3.02% 3.24% 6.90% 5.91% 4.68% 3.68% 9.55% 7.56% 6.83% 6.41%
ADTO - Cash 5,781.30 2,926.20 2,138.20 1,679.30 3,299.50 3,173.40 2,660.90 2,554.80 6,664.00 5,634.00 4,858.00 3,044.00
Market Share - Cash 17.26% 13.73% 10.90% 8.51% 14.03% 14.33% 13.75% 12.70% 17.26% 18.36% 16.09% 11.89%
ADTO- F&O 51,108.00 33,972.90 12,407.40 8,866.20 49,246.80 36,947.80 29,035.30 19,808.00 70,030.00 43,012.00 36,527.00 34,636.00
Market Share - F&O 7.77% 5.14% 2.68% 2.90% 6.67% 5.62% 4.42% 3.38% 9.16% 7.02% 6.34% 6.16%
ADTO - Commodity 3,775.40 3,728.50 1,937.90 15,055 4,864.30 4,180.70 3,347.50 2,458.40 4,785.00 4,242.00 2,049.00 3,826.00
Market Share 24.60% 16.90% 10.04% 8.82% 20.88% 19.09% 14.48% 12.39% 25.96% 25.34% 20.28% 18.01%

Source: RHP

                       

ADTO : Average Daily Turnover

               

One of the reasons due to which, the company has gained market share over the years, is its superior technology and competitive brokerage rate. The table below shows the company’s brokerage rate compared to the industry.

Brokerage rates of major firms across products
Brokers Delivery Intraday Futures Options Commodity
Angel Broking 0 Rs 20 Rs 20 Rs 20 Rs 20
Zerodha 0 Rs 20 Rs 20 Rs 20 Rs 20
RKSV Securities 0 Rs 20 Rs 20 Rs 20 Rs 20
5 Paisa Rs 20 Rs 20 Rs 20 Rs 20 Rs 20
Axis Securities 0.50% 0.05% 0.05% Rs 100 per lot Rs 100 per lot
Axis securities (tiered plan) 0.25% 0.03% 0.03% Rs 50 per lot Rs 50 per lot
Kotak Securities 0.49% 0.05% 0.05% Rs 300 per lot Rs 300 per lot
HDFC Securities 0.50% 0.05% 0.05% Rs 100 per lot Rs 100 per lot
Motilal Oswal 0.50% 0.05% 0.05% Rs 70 per lot 0.05%
IIFL Securities 0.50% 0.05% 0.05% Rs 100 per lot Rs 100 per lot
ICICI Securities 0.55% 0.28% 0.05% Rs 95 per lot Rs 95 per lot
ICICI securities (tiered plan - 1) 0.25% 0.03% 0.03% Rs 35 per lot Rs 35 per lot

 

Besides broking and advisory business, the company also offers other services such as margin trading facility and non-margin trading facility designated client lending and distribution activity. In the former, it provides a margin trading facility to its clients to enable them to leverage their eligible collaterals, by funding their requirements in the cash delivery segment of equities. They provide margin funding for up to 79.55 per cent of the purchase value by the client. As of June 30, 2020, its margin trading facility book of Rs 768.70 crore was spread, over 1,43,287 clients.

Angel’s distribution business primarily consists of the distribution of third-party mutual funds, and life and health insurance products to its clients. The income from distribution activity was at Rs 2.07 crore, Rs 9.98 crore, Rs 11.63 crore, and Rs  12.51 crore for the period ended June 30, 2020, and in the financial years of 2020, 2019, and 2018, respectively.

 Financials

The revenue from operations of the company has remained flat over the last few years and for the period ended June 30, 2020, and in financial years of 2020, 2019, and 2018, revenue from operation stood at Rs 238.42 crore, Rs 724.62 crore, Rs 757.98 crore, and Rs 764.28 crore, respectively.  The profit in the same period stood at Rs 48.26 crore, Rs 86.79 crore, Rs 83.40 crore, and Rs 109.79 crore respectively.  

Financial Details (Rs Crore)

Particulars Q1FY21 FY20 FY19 FY18
Total Revenue 246.59 754.71 784.11 779.99
Profit Before Tax 64.63 118.77 128.19 160.03
Profit for the Period 47.3 82.35 79.84 107.09
Net Profit as % to Revenue 19.18% 10.91% 10.18% 13.73%
EPS (Rs) 6.57 11.44 11.09 14.91
RONW (%) 7.40% 13.92% 15.02% 22.61%
NAV (Rs ) 88.77 82.15 73.82 65.78

 

The reason why the revenue has remained stagnant in the last few years is due to lower income from interest income. It has declined both on an absolute basis as well as a percentage of total income. Its share of total income has declined from 31 per cent of total income to 14.67 per cent at the end of Q1FY21. The return on net worth for equity shareholders (RoNW) for the period ended June 30, 2020, was at 7.40 per cent (not annualised) and the financial year 2020 was 13.92 per cent. 

  Q1FY21 FY20 FY19 FY18
  Rs in Cr % To Total Rs in Cr % To Total Rs in Cr % To Total Rs in Cr % To Total
Interest Income 34.93 14.65% 157.74 21.77% 202.35 26.70% 236.92 31.00%
Fees and commission income 203.16 85.21% 564.4 77.89% 555.57 73.30% 526.58 68.90%
Net gain on fair value changes 0.34 0.14% 2.49 0.34% 0.07 0.01% 0.78 0.10%
Total 238.4 100 724.6 100 757.9 100 764.2 100

 

Valuation and our take

At the higher end of the price band of Rs 306, the issue is valued at 30.39 times its FY20 earnings post its expanded equity, which looks on the upper side compared to its peers, which on average is trading at PE of less than 30. When we value the issue based on market cap to sales, we see it is in line with its peers.

Name of the company Face Value Closing price on August 31, 2020 Total Income (Rs Crore) FY20 (Diluted) NAV P/E RoNW (%) Mcap/Sales
Angel Broking Ltd 10 NA 754.71 11.44 82.15 30.4* 13.92 3.32
ICICI Securities Ltd 5 477 1,722.06 16.8 37.5 28.4 44.32 8.78
Geojit Financial Services Ltd 1 38.2 306.37 2 23.8 19.4 8.91 2.98
IIFL Securities Ltd 2 41.9 789.95 7.3 27.5 5.7 26.39 1.69
Motilal Financial Services Ltd 1 683.4 2,365.41 12.2 210.9 56 4.15 3.90
JM Financial Ltd 1 81.3 3,453.55 6.5 96.7 12.6 9.69 2.19
Source: RHP; P/E Ratio has been computed based on the closing market price of equity shares on BSE on August 31, 2020.
*Based on Upper Price Band and expanded equity                

The issue according to us is fairly priced and not much is left in the table for investors. Nevertheless, looking at diversified product offerings across segments at competitive price and augmentation of digital processes, technological platforms, robust client acquisition, and an all-inclusive flat pricing model has enabled to substantially grow the average daily turnover, readers can apply the issue for listing gains.

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