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Curb in opex aids bottomline….

About the stock: 5Paisa is a leading discount stock broker backed by the Nirmal Jain led IIFL group.

* Aggressive client accretion with ~86% of incremental client from Tier II & below cities and ~75% of customers below 35 years of age

* The company has overall cash market share of ~3% as on June 2022

Q1FY23 Results: Moderation in client acquisition; cost control aid PAT

* ADTO was up 13% QoQ and 136% YoY to | 1.36 lakh crore

* Moderation in client acquisition at 2.3 lakh; total clients at 29.6 lakh

* Revenue was up 40% YoY but down 5% QoQ due to decline in brokerage

* Sequentially opex declined 10%. Thus, PAT was up 62% QoQ to | 7.5 crore

What should investors do? 5Paisa’s share price has grown more than 40% over the past three years. Sustained improvement in profitability margin needs to be vetted. However, fintech offering in large opportunity market keeps us positive on the future growth prospects.

We retain our BUY rating on the stock

Target Price and Valuation: We lower multiple and value 5Paisa at ~24x FY24E EPS and 2.4x FY24E revenue to arrive at revised target price of | 375 per share.

Key triggers for future price performance:

* Focus on improving quality of customer to aid revenues growth & ARPU

* Major IT spends over, thus control on opex to aid earnings trajectory

* Improving granularity in client funding book to mitigate risks

* Sustained earnings & gain in market share remain upside triggers

Alternate Stock Idea: Apart from 5Paisa, in our coverage we also like MCX.

* MCX is a leader in commodity derivative exchanges in India with ~94% market share in commodities future space

* BUY with a target price of | 1600

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