ANGELONE printed flat sequential growth in its top line due to slower retail derivatives ADTVs and weak ancillary transaction revenues. Given the sharp jump in derivative volumes in Dec-22, followed by similar trends in Jan-23TD, we upgrade our earnings estimates by 8/3% for FY23E/FY24E. Although ANGELONE is capitalising on industry tailwinds around all-time high options volumes, our analysis suggests that the company's 12m-rolling activation rate has dropped to 24% (-813bps QoQ), suggesting elevated drop-off rates, calling for a cut in our target multiple to 15x (from 17.5x). Given the flat-fee model, a lean cost structure and its market leadership in retail derivatives, ANGELONE remains a convincing play on the Indian capital markets; maintain BUY rating with a revised target price of INR1,800 (15x Sep-24E EPS).
Negative surprise on marketing spends: Net broking revenue at INR3.51bn dipped 1.4% sequentially, owing to a slowdown in industry derivative volumes. The activation ratio at 33% (-532/-237bps YoY/QoQ) remains under pressure on account of the highly volatile market conditions. While the customer addition run rate remains healthy, the poor activation ratio is reflected in a 10% QoQ dip in average revenue-generating orders per customer. Despite a weak MTF book (-2% QoQ), NII was up 15% QoQ, aided by a sharp jump in idle customer funds (+12% QoQ) being used for derivative trading and higher FD rates. Opex (-2% QoQ) was patchy, with the sequential slowdown in customer adds (-15% QoQ) not translating into correspondingly lower marketing spends, driving EBITDA margin to 53.2% and APAT to INR2.21bn (+4% QoQ).
Growth outlook: Management stated that the company is actively looking to leverage machine learning models to reactivate dormant customers. Also, the management is increasingly focused on introducing other financial products (insurance, lending, etc.) to cover a customer's entire investment journey. Despite volatile and uncertain markets, consistently strong retail derivatives volumes suggest an increasing trend towards options trading, which is likely to disproportionately benefit FinTech discount brokers.
Shares of Angel Broking Limited was last trading in BSE at Rs. 1267.15 as compared to the previous close of Rs. 1292.05. The total number of shares traded during the day was 12906 in over 1227 trades.
The stock hit an intraday high of Rs. 1298.55 and intraday low of 1255.65. The net turnover during the day was Rs. 16498187.00. |
