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Risk-reward favourable; business momentum intact

Angel One (formerly Angel Broking) maintained its business momentum in Aug’22 with 9%/4%/29% MoM increase in number of orders/client base/gross client acquisition. This assumes significance against the backdrop of the small dip seen in Jun/Jul’22. We factor in 12% earnings CAGR over FY22-24E and expect PAT of Rs7.8bn in FY24E. Maintain BUY with a target price of Rs1,830 (unchanged) based on 20x FY24E EPS of Rs92.

Angel One reported recovery in operating indicators in Aug’22. The number of orders recovered to the monthly run-rate of 72.5mn in Aug’22. The average number of daily orders traded increased from 3.2mn in Jul'22 to 3.6mn in Aug'22 (number of orders in FY22 were 680mn and average daily orders traded were 2.75mn). Client acquisition remained strong with 0.44mn adds in Aug'22 vs 0.34mn in Jul'22. Total client base stood at 11.2mn as of Aug'22 (FY22 total client acquisition was 5.3mn translating to an average monthly run-rate of 0.44mn; overall client base stood at 9.21mn). However, MTF book declined 4% MoM to Rs13.7bn despite 22% increase in cash ADTV to Rs42bn (FY22 MTF book was at ~Rs15bn). There was market share loss in all segments except commodities. Angel One’s overall market share contracted 44bps MoM to 21.5%, derivatives market share fell 43bps MoM to 21.6% and cash market share declined 87bps MoM to 13.9%. Market share in commodities increased 374bps MoM to 51.6% in Aug’22.

If Sep’22 mirrors Aug’22 operationally, Angel One can report PAT of Rs1.84bn in Q2FY23. If average daily orders in Sep’22 remain in the similar range as in Aug’22, total orders in Q2FY23 can rise 5.8% QoQ to ~219mn. Accordingly, we estimate net brokerage income to grow 5.5% to Rs3.4bn in Q2FY23. If we assume Sep’22 MTF book to remain at the Aug’22 level of Rs13.7bn, average Q2FY23 MTF book will be at Rs13.9bn, down 20% QoQ. We have lowered Angel One’s NII by 20% to Rs0.7bn in Q2FY23E in line with drop in MTF book. We expect ‘other income’ at Rs1bn (similar to Q1FY23). We forecast total income to grow 1% QoQ to Rs5.2bn. Employee cost / Other expenses is likely to be at Rs1.1/1.6bn (similar to Q1FY23). Angel One acquired 1.26mn clients in Q1FY23 whereas Q2FY23E client acquisition is expected to be 1.22mn based on the monthly run-rate of Jul/Aug’22. Our estimates for Q2FY23 EBITDA and EBITDA margin stand at Rs2.7bn and ~48.5%. Q2FY23E PAT is expected at Rs1.84bn, up 1% QoQ.

Regulatory updates are expected to have a small impact. SEBI has released fresh guidelines to stockbrokers / exchanges to prevent access to unregulated platforms who offer algo trading. Additionally, SEBI regulation for settlement of running accounts will be applicable from Oct’22. Trading members will have to settle client funds on the first Friday of every quarter. If a client has opted for monthly settlement, the stockbrokers are obligated to do so. If a client has not undertaken any trade for past 30 days, then the amount has to be returned in next three working days. This is likely to impact the ‘other income’ of brokers, who earn returns similar to short term rates on client funds.

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