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Healthy client accretion; gradual uptick in PAT…

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

* Aggressive client accretion with ~84% of incremental client from Tier II & below cities and ~78% of customers below 35 years of age

* The company has retail cash market share of 3.6% as of September 2021

Q2FY22 Results: 5 Paisa reported mixed Q2FY22 results.

* ADTO was up 40% QoQ amid robust client accretion at 3.42 lakh

* Revenue was up 13% QoQ to | 68 crore, primarily led by 43% QoQ rise in the MTF book

* Elevated marketing & other expense impacted earnings momentum with PAT at | 1.7 crore (down 77% QoQ)

What should investors do? 5 Paisa’s share price has grown by ~2.4x over the past four years (from ~| 220 in November 2017 to ~| 537 levels in October 2021).

* Being a new age fintech broker, we retain our BUY rating on the stock.

Target Price and Valuation: We value 5 Paisa at ~38x P/E on FY23E EPS to arrive at revised target price of | 530 per share.

Key triggers for future price performance:

* Focus on aggressive client accretion to aid ADTO and thereby topline

* Revamp existing product suite, new product launch, improvement in technology & branding to support incremental accretion

* MTF surge, client addition to aid earnings growth and return ratios

* Elevated marketing & tech spends may lead to gradual uptick in earnings

* Higher client engagement to improve activation is the key ahead

Alternate Stock Idea: Apart from 5 Paisa, 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 as on FY21

* BUY with target price of | 2,000

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