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Angel Broking
Leveraging digital platforms to enhance clients base
Salient features of the IPO:
• Angel Broking Limited (ABL) is one of the largest retail brokinghouses in India in terms of active clients. Key business segmentsinclude broking & advisory services, margin funding, loan againstshares and financial product distributions.
• ABL entered into the broking industry over 22 years ago and has overthe years built an online and digital broking and financial servicesplatform with a pan India presence.
Key competitive strengths:• One of the largest broking houses with strong brand equity• Client acquisition through diversified digital platform• Integrated, end to end, and advances digital experience ensuring
client satisfaction• Diversified product offering across segments at competitive price• Robust business metrics building operating leverage• Experiences management team with proven executive capabilities
Valuation: At the CMP of Rs306, demanding valuation at Rs25,030 mn isvalued at P/E of 28.9x (post issue adjusted FY20 EPS of Rs10.6) and P/BVof 2.7x (post issue adjusted BVPS of Rs115).
Below are few key observations of the issue: (continued in next page)
• ABL is the fourth largest brokerage house in India in terms of activeclients. ABL has over 9 lakh NSE active clients as of Aug 31’ 2020which places it fourth behind only to Zerodha, ICICI Securities andRKSV Securities. The company generates major business (around 70%of total revenue) from brokerage segment (as retail brokeragesincome). Brokerage services to retail clients primarily compromisestrading in equities, equity derivatives, commodities and currencyderivatives.
• As per the mgmt, ABL is well placed to capitalized on the expectedgrowth in the broking sector in India with increasing participation ofretail clients in the equity market. Even in the economic lockdownphase, brokerages companies in the country have witnessed asubstantial growth in opening of trading & demat a/c. Since April,more than 5 million new demat accounts have been opened withdepository firms CDSL and NSDL.
• ABL strategized to focus more on leveraging digital platforms tostrengthen leadership position to become the largest retail brokingfirm in India, both by broking revenue and active clients. ABLwitnessed an increase of 18.7% from 1.8 million clients in FY20 to2.15 million clients as of Q1FY21.
• Being one of early mover in the brokerage industry and over twodecades of experience, ABL assessed the technological developmenttrend in the earlier stage and hence made advanced progress indigital platforms. With app like Angel Broking Mobile Aap, Angel BEEAap, SpeedPro and NXT, the company has planned to leverage thegrowth opportunity in India’s under penetrated brokerage industry.In Q1FY21, 85% of ABL’s total clients have been acquired digitally ofwhich 53% are acquired through performance marketing, 21%through referrals and 11.2% through digital referral associates (DRA).
• The company in RHP has outlined its primary strategy is to profitablygrow retail broking, margin funding and distribution businessesthrough online and digital platforms.
21th Sep. 2020
1
Analyst
Satish Kumar
Deskphone(022-67079999; Ext:913,
Mob:9167120440
Email [email protected]
Shareholding Pattern
Pre-Issue Post Issue
Promoter & promoter group
55.2% 44.8%
Public 43.8% 56.2%
Total 100.0% 100.0%
Source: Choice Broking Research, RHP
Recommendation Subscribe
Price Band Rs305 -306 per share
Face Value Rs 10 per share
Fresh Issue Size Rs3,000 mn
Share for Fresh Issue (Higher Price Band)
9.8 mn shares
OFS Issue Size Rs3,000 mn
Total Issue Size Rs6,000 mn
Bidding Date Sep 22' 2020 - Sep 24' 2020
MCAP at Higher Price Band
Rs25,030.5 mn
Book Running Lead Manager
ICICI Securities Ltd., Edelweiss Financial Services Ltd., SBI
Capital Market Limited
RegistrarLink Intime India Private
Limited
Industry Financial Services
Retail application money at higher cut-off price per lot
Number of shares per lot 49
Application Money Rs14,994 per lot
Allocation Detail
Qualified Institutional Buyers (QIB)
50%
Non-Institutional Investors (NII)
15%
Retail Individual Investors (RIIs)
35%
© CHOICE INSTITUTIONAL RESEARCH
• While, the company posted significant progress in client acquisition from 1.06 mn in FY18 to 2.15 mn by Q1FY21, operatingrevenue contracted by a CAGR of -2.6% during FY18-FY20. The mgmt attributed this to decline in brokerage rate.
• ABL has introduced competitive pricing plan in 2019 namely Angel itrade which compromises plan of Rs0 for equitydelivery and Rs20 for all other segments. We think the move was being taken to tackle the competitions imposed bydiscount brokers. Now mgmt planned to grow revenue only be adding new customers, while brokerage prices to keep lowto remain competitive amidst increasing competition in the industry.
• ABL is planned to raise of Rs3,000 mn as fresh issue to meet working capital management (Rs2,300 mn) and generalcorporate purposes. However, balance sheet shows strong cash position of the company, creating some uncertainty forequity dilution through fresh issue. ABL’s cash and bank balance as of Jun 30’ 2020 stood at Rs19,611 mn and has thenegative net debt position.
• After adjusting net worth with fresh proceed of Rs3,000 mn, RoE reduced to single digit of 9.2% from 14.7% (calculated onFY20 PAT). While BVPS increased to Rs114.8.
• ABL has augment its digital base to record strong customers acquisition in under penetrated broking industry which iswitnessing substantial growth in retail client segments. Average daily turnover in Indian equity market increased toRs14,350 bn in FY20 from Rs7,045 bn in FY18 driven by equity derivative segment (97% of ADTO). While, ABL’s net clientaddition run rate was 113,191 in Q1FY21 compared to 43,582 in FY20.
• We believe ABL to keep posting strong customers acquisition numbers going forward, however its strategy to keepbrokerage low to compete with discount brokerages could keep profitability under pressure. At the CMP of Rs306,demanded valuation at Rs25,030 mn is valued at P/E of 28.9x (post issue adjusted FY20 EPS of Rs10.6). Other brokeragecompanies’ valuation include ICICI Sec (P/E: 28.3x) and Aditiya Birla Money P/E: 22.4x). ABL’s strategy to focus onleveraging digital platforms for client acquisition has started yielding benefits. Alternatively, the company is alsocompeting with discount brokers through reducing brokerage charges and additionally providing other value-addedservices like research advisory. 5paisa Capital, a discount broker launched by IIFL in 2015, is trading at valuation of P/BVof 6.7x as compared to ABL’s P/BV of 2.7x.
• Thus, considering all parameters, we assign ‘Subscribe’ rating to the issue.
Companies M. Cap CMP EPSP/E (x)
BVPSP/BV
(x)PAT
(TTM) Revenue
TTMRoE (%) RoA(%)
Net worth
Rs mnAngel Broking 25,030.5 306 10.6 28.9 114.8 2.7 867.9 7,246.2 9.2% 4.0% 9,390.8 Geojit Financial Services 9,770.3 41 2.8 13.3 21.2 1.8 677.4 3,208.1 13.4% 11.6% 5,040.85Paisa Capital Ltd. 9,682.4 380 -1.8 -204.0 54.3 6.7 -45.7 1,277.1 -3.3% -3.2% 1,382.4Aditya Birla Money 2,364.6 42 1.9 22.4 5.6 14.2 120.0 852.1 38.4% 2.2% 312.7ICICI Securities 1,54,305.1 479 19.3 28.3 32.5 14.6 6,213.1 18,645.1 51.4% 21.1% 12,095.4IIFL Securities 12,576.3 39 4.7 8.3 25.5 1.5 1,501.0 6,894.8 17.1% 1.6% 8,797.9
* Angel broking PAT and revenue were taken for FY20 Source: Choice Broking Research, RHP
Offer Opens on22-Sep-2020
Offer Closes on24-Sep-2020
Finalization of Basis of Allotment29-Sep-2020
Unblocking of ASBA Account30-Sep-2020
Credit to Demat Accounts01-Oct-2020
About the issue:
• Angel Broking is coming with initial public offer (IPO) of Rs6,000 mn. The issue compromises Rs3,000 mn as fresh issueand Rs3,000 mn as offer for sale (OFS).
• Price band for the issue is Rs305-Rs306 per share
• The issue will open on Sep 22’ 2020 and closes on Sep 24’ 2020
• At the higher price band, number of fresh issue shares is 9.8 mn. Post issue, total number of share increased to 81.8 mnwhich translate to a market cap of Rs25,030.5 at the higher price band.
• Promoters namely Ashok D Thakkar is selling 3.2 mn shares (Rs183.35 mn) and Sunita A Magnani is selling 0.75 mnshares (Rs45 mn). Post issue, promoter stake will reduce to 43.8% from 55.2% in pre issue.
• International Finance Corporation (IFC) an institutional investor, is selling equity shares worth of Rs1,200 mn
• Objective of the issue is 1) to meet working capital requirements and 2) general corporate purpose.
• Not more than 50% of the net offer shall be available for allocation on a proportional basis to a qualified institutionalinvestors (QIIs). Further not less than 15% shall be available for allocation on a proportional to non-institutional investors(NIIs) and not less than 35% of net offer shall be available for allocation to Retail Institutional Investors (RIIs).
• The offer is being made through book building process.
• With 9.8 mn shares as fresh issue, equity will dilute ~14%.
• Average cost of acquisition by selling promoters is Rs0.99, Rs6.48.
Indicative IPO process time line:
Commencement of Trading05-Oct-2020
Company introduction:
Angel Broking Limited (ABL) is one of the largest retail broking houses in India in terms of active clients. Key business
segments include broking & advisory services, margin funding, loan against shares and financial product distributions.
Broking and allied services are offered through online and digital platform and has a network of over 11,000 authorized
persons as of Jun 30’ 2020. ABL has a well diversified network in the country as customer outreach spans across
approximately 96.9% or 18,649 pin codes in the country. As per RHP, the company primary focus is to profitability grow
retail broking, margin funding and distribution businesses through online and digital platforms. The company has launched
various apps like Angel Broking Mobile App, trade.angelbroking.com, Angel Speed Pro, Angel BEE which are powered by
‘ARQ’ a rule based investment engine. Broking services is provided through various web, digital, and .exe platform, which are
integrated with each other enabling clients to have seamless trading and investment experience, positioning to benefit from
the development of the Indian financial markets, increased emphasis on digitalization and growth in returns from such
financial investments.
Business Performance
ABL reported sales of Rs7,246.2 mn in FY20 and around 70% of the business came as brokerages income. However, over
FY18-FY20, sales contracted by a CAGR of -2.6% despite the significant clients addition. Mgmt attributed this decline to the
reduction in brokerages charges for the clients. EBIDTA and NPM stood at 21.9% and 12.0% in FY20 as compared to 25% and
11% in FY19. Return of Equity (RoE) stood at 14.7% in FY20. In Q1FY21, the company reported sales of Rs2,384 mn and PAT
at Rs482.6 crore with strong improvement in efficiency at EBIDTA margin of 29.2% and NPM of 20.2%.
Source: Choice Broking Research, RHP
Business Overview:
The company provides broking services across equity, commodity and currency segments along with debt products. ABL also
facilitates opening of demat accounts as a part of broking and advisory services. ABL is a member of BSE, NSE, MSEI, MCX
and NCDEX. To complement broking & advisory services, ABL provides the additional services like 1) research services 2)
investment advisory and 3) investment education. In addition to broking & advisory services, the company also provides
other services like marginal trading facility, distribution and loans against shares.
Marginal trading facility: ABL provides marginal trading facility to clients for leveraging their eligible collateral by funding
their requirements on cash delivery segments of equities. Such funding is subject to exposure against margins that are
mandated by stock exchanges.
Distribution: ABL also distributes third party financial products such as mutual funds and health & life insurance products
through offline channels and digital platforms such as ‘Angel Broking’ and ‘Angel BEF’.
Loan against shares: The company also provides loans against shares to retail clients through subsidiary Angel Fincap Private
Limited.
Source: Choice Broking Research, RHP
© CHOICE INSTITUTIONAL RESEARCH
Competitive strengths:
• One of the largest broking houses with strong brand equity• Client acquisition through diversified digital platform• Integrated, end to end, and advances digital experience ensuring client
satisfaction• Diversified product offering across segments at competitive price• Robust business metrics building operating leverage• Experiences management team with proven executive capabilities
Business strategy:
• Strengthen leadership position to become largest retail broking businessin India
• Augment investment in mobile platform, artificial intelligence, machinelearning capabilities and newer technologies
• Establish a leadership position in investment advisory space to supportbusiness
• Capitalization of the growing investable wealth in India
Risk and concerns:
• Increasing competition in the industry
• Challenges from discount brokers business model
• Changing norms by SEBI
• Volatility in equity markets
© CHOICE INSTITUTIONAL RESEARCH
Financial statements:
Consolidated (Rs mn)
Source: Choice Broking Research, RHP
Profit & Loss A/c
Particulars FY18 FY19 FY20 Q1FY21
Operating Revenue (OR) 7,642.8 7,579.8 7,246.2 2,384.2
Fee and commission expense (2,464.0) (2,419.6) (2,304.4) (764.9)
#REF! (1,219.7) (1,591.7) (1,598.0) (373.1)
Impairment of financial
instruments(97.1) (151.5) (377.1) (189.8)
Employee Benefit Expenses (190.5) (189.1) (209.2) (49.7)
Other Expenses (1,282.5) (1,522.9) (1,382.2) (360.4)
EBITDA 2,579.4 1,894.1 1,584.5 696.0
Depreciation and Amortization
Expenses(190.5) (189.1) (209.2) (49.7)
EBIT 2,388.9 1,705.0 1,375.4 646.4
Finance Costs (945.7) (684.5) (488.6) (81.8)
Other Income 157.1 261.4 300.9 81.7
Exceptional Items 0.0 0.0 0.0 0.0
PBT 1,600.3 1,281.9 1,187.7 646.3
Tax Expenses (502.5) (447.9) (319.8) (163.7)
PAT 1,097.9 834.0 867.9 482.6
Balance Sheet
Particulars FY18 FY19 FY20 Q1FY21
Share Capital 720.0 720.0 720.0 720.0
Reserves and Surplus 4,015.8 4,594.4 5,194.2 5,670.9
Long Term Provisions 44.0 52.3 67.1 79.3
Trades Payables 6,146.6 6,377.6 9,394.9 15,036.8
Short Term Borrowings 11,374.3 8,718.2 4,908.8 6,580.1
Tax liabilities (Net) 2.1 2.7 0.5 58.9
Other short term liabilities 1,242.4 1,358.2 1,304.7 1,341.5
Other long term liabilities 241.5 261.9 311.7 469.4
Total Liabilities 23,786.7 22,085.3 21,901.7 29,956.8
Property, plant and equipment 1,065.1 1,062.9 1,038.8 1,024.5
Intangible Assets 91.6 72.8 68.3 66.9
Tax assets (net) 76.4 127.4 98.1 61.8
Short term investments 65.0 149.1 352.7 23.6
Inventories 0.6 0.5 0.5 0.0
Trade Receivables 1,568.2 2,146.4 390.3 562.8
Cash and Bank Balances 9,447.1 9,859.7 14,135.6 19,610.9
Short Term Loans and Advances 10,924.4 7,616.9 2,805.8 8,144.1
Other Assets 548.4 1,049.6 3,011.9 462.1
Total Assets 23,786.7 22,085.3 21,901.7 29,956.8
Cash Flow Statement
Particulars FY18 FY19 FY20 Q1FY21
Cash Flow from Operating
Activities(2,970.0) 7,087.6 6,433.0 (2,900.2)
Cash Flow from Investing
Activities414.3 (193.6) (281.3) 277.1
Purchase of fixed assets and
properties(66.3) (116.4) (126.2) (55.8)
Cash Flow from Financing
Activities2,324.7 (3,654.7) (4,488.9) 1,647.1
Net Cash Flow (231.0) 3,239.3 1,662.8 (976.1)
Opening Balance of Cash and
Bank Balances1,461.3 1,230.3 4,469.6 6,132.4
Closing Balance of Cash and
Bank Balances1,230.3 4,469.6 6,132.4 5,156.3
Financial Ratios
Particulars FY18 FY19 FY20 Q1FY21
Revenue Growth Rate (%) -0.8% -4.4%
EBITDA Growth Rate (%) -26.6% -16.3%
EBITDA Margin (%) 33.7% 25.0% 21.9% 29.2%
EBIT Growth Rate (%) -28.6% -19.3%
EBIT Margin (%) 31.3% 22.5% 19.0% 27.1%
Adjusted PAT Growth Rate (%) -24.0% 4.1%
Reported PAT Margin (%) 14.4% 11.0% 12.0% 20.2%
Fixed Asset Turnover Ratio (x) 6.6 6.7 6.5 2.2
Total Asset Turnover Ratio (x) 0.3 0.3 0.3 0.1
Working Capital Turnover Ratio
(x)1.4 1.3 1.1
Current Ratio (x) 1.3 1.4 1.4 1.3
Debt to Equity (x) 1.3 1.2 1.6 2.4
Total Debt (Rs.) 11,374.3 8,718.2 4,908.8 6,580.1
Net Debt (Rs.) 1,927.2 -1,141.5 -9,226.8 -13,030.9
Net Debt to EBITDA (x) 0.7 -0.6 -5.8 -18.7
Net Debt to Equity (x) 0.4 -0.2 -1.6 -2.0
RoE (%) 23.2% 15.7% 14.7% 7.6%
RoA (%) 4.6% 3.8% 4.0% 1.6%
RoCE (%) 50.0% 31.8% 23.0% 10.0%
RoIC (%) 27% 17% 14% 6%
EV 26,957.7 23,888.9 15,803.7 11,999.6
EV/Sales (x) 3.5 3.2 2.2 5.0
EV/EBIDTA (x) 10.5 12.6 10.0 17.2
EV/EBIT (x) 11.3 14.0 11.5 18.6
Valuation ratios
Restated Adjusted EPS (Rs.) 13.4 10.2 10.6 7.9
Restated BVPS (Rs.) 57.9 65.0 72.3 114.8
P/E (x) 22.8 30.0 28.8 38.9
P/BVPS (x) 5.3 4.7 4.2 2.7
EV/EBITDA (x) 10.5 12.6 10.0 17.2
© CHOICE INSTITUTIONAL RESEARCH
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the information contained in this recommendation or any action taken on basis of this information. This report is based on the fundamental analysis with aview to forecast future price. The Research analysts for this report certifies that all of the views expressed in this report accurately reflect his or her personalviews about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly
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