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Business momentum continues

Angel Broking (ABL) has successfully maintained its business momentum in Q1FY22 with 99%/19% YoY/QoQ PAT growth. We estimate PAT to clock 22% CAGR between FY21-FY23E and value the stock at 22x (18x earlier) FY23E EPS of Rs58 (Rs50 earlier). Maintain BUY with a revised target price of Rs1,284 (Rs900 earlier).

* Q1FY22 earnings register strong 13% QoQ growth. Flat fee revenues have grown 21% QoQ to Rs1.6bn in Q1FY22 compared to Rs3.3bn in FY21. Traditional revenues were Rs503mn in Q1FY22 compared to Rs2.1bn in FY21.The authorised person driven segment revenue grew 7% QoQ to Rs527mn compared to Rs1.6bn in FY21. Margin trading funding (MTF) net interest income was Rs469mn in Q1FY22 compared to Rs1.4bn in FY21. Despite 1.2mn gross client addition in Q1FY22, EBITDA margin remained stable at 49%. ABL also declared first interim dividend of Rs5.15 per share (total dividend of Rs12.9 per share in FY21). Within gross brokerage, derivatives mix has improved to 63% in Q1FY22 from 60% in Q4FY21 and 41% in Q1FY21, while share of cash has declined to 31% in Q4FY21 from 33% / 50% in Q4FY21 and Q1FY21, respectively.

* Increasing multiple from 18x to 22x. The rationale is threefold as follows. (1) Strong exchange turnover momentum (annualised Q1FY22 run-rate of NSE would imply FY22 growth in cash/derivative volumes of 16/70% in FY22), strong client acquisition momentum (average Q1FY22 active client is 19% higher than FY21) and heightened capital markets momentum (multiple IPOs lined up), (2) significant higher multiples of capital market players like CAMS, CDSL, AMCs. While retail trading volumes could be cyclical which may make earnings volatile for ABL, the same hypothesis is also true for exchanges and depositories and (3) available optionalities in terms of distribution/AMC business under proposed umbrella brand ‘’Ängel One’”.

* Noteworthy business parameters include (1) high share of client additions from tier3/4 cities (93% mix in Q1FY22), (2) high share of less than 2-year-old client mix (contributed 75% of brokerage revenue in Q1FY22), (3) continued growth in number of trades (14% QoQ an 93% YoY), (4) low median age of clients acquired (29 years), (5) increasing number of Angel app downloads (12.6mn) and (6) data science driven approach to micro-target many segments of diverse audience.

* Upgrade FY22/23 earnings, maintain BUY: We upgrade FY22/23 earnings by 20%/17% to factor strong business momentum. We now expect PAT of Rs4.2bn / 4.8bn in FY22/23. Our earnings expectations factor any possible deceleration in trading volumes in H2FY22. Sustained growth in earnings will lead to operating leverage which should increase EBITDA margin from 48% in FY21 to 50.4% in FY22 and 51.3% in FY23.

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