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Angel One (Angel) is gradually focusing on its business strategy to expand product portfolio beyond broking and increasing the reach through improved digital collaboration with offline partners, while continually augmenting its core digital capability through SuperApp. The company is also open to suitable inorganic opportunity. While the degree of success in an aggressive fintech strategy remains to be seen, we remain positive on more than 15% earnings CAGR potential driven by core business growth while cross-sell optionalities are likely to become more tangible in FY24-25E. However, post 35% rally in stock price over past three months, we downgrade the stock to HOLD from BUY as core broking earnings will remain dependent on capital market momentum. We expect revenue/opex/PAT CAGR of 16/17.5/17% between FY23-25E. Our revised target price stands at Rs1,622 (earlier: Rs1,590) based on 12x (unchanged) FY25E EPS of Rs135 (earlier Rs133). Risks include capital market volatility, higher costs in new initiatives and restriction on client onboarding

* Angel One’s strategy spans across growth, retention and cross sell in varying degrees beyond broking to the entire fintech landscape now. Key elements include: 1) Achieving market leadership (Q1FY24 derivatives market share improved 175bps QoQ to 24.5% (based on company monthly disclosures), 2) augmentation of tech and product capabilities (SuperApp ranks amongst top 15 apps on Play store and App store) for better retention and customer satisfaction which is also measurable through improved NPS, 3) increasing customer lifecycle value (SuperApp will be key here) as revenue vintage of 1-2yrs/2-3yrs/3-5yrs has increased from 9/8/18% in Q1FY22 to 12/22/29% in Q1FY24 and 3-year revenue/CoA for clients acquired in FY22 remains robust at 7.8x, (4) expanding multi-product relationships that include distribution of MF products (direct MF schemes and SIPs) and consumer credit, (5) exploring inorganic growth opportunities by investing in manufacturing platforms in consumer financial services landscape, distribution platforms, WealthTech, broking adjacencies, content engagement/learning platforms and talent/IP acquisition.

* Key operating highlights: a) Gross client acquisition is largely driven by tier 2-3 cities (89% of gross client acquisition was from tier 2-3 cities), b) median age of client base remains at 29 years; c) launched direct MF investment product on all platforms (IOS, Android and Web) due to which new monthly SIP registrations have quadrupled between Mar’23 and Jun’23; d) Angel’s NSE active client addition stood at 0.04mn/0.13mn as against industry ‘decline’ of 2.66mn/1.77mn clients in Q4FY23/Q1FY24, respectively; e) as of FY23, variable mix of cost stood at 78%.

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