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Strong earnings growth continues, benefiting from increasing retail footprint in capital markets

Angel One (Angel) successfully maintained its business momentum in Q4FY22 with 101%/24% YoY/QoQ PAT growth. We estimate PAT CAGR of 15% over FY22- FY24E and value the stock at 22x FY24E EPS of Rs101 (earlier: FY23E EPS of Rs86.5). Maintain BUY with a revised target price of Rs2,230 (earlier: Rs1,900).

Incrementally noteworthy business parameters include: 1) gross client addition was 1.5mn in Q4FY22 and 5.3mn in FY22 with 94% adds from tier-2/3 cities; (2) client vintage remains new with less than 2-year-old clients contributing 76% of brokerage revenue in Q4FY22; 3) continued growth in the number of orders (17% QoQ, 83% YoY) and app installs (21.8mn in Q4FY22 vs 12.6mn/15.4mn/18.3mn in Q1/Q2/Q3FY22); 4) low median age of clients acquired (29 years); and 5) digitalfocused talent pool stands at 610 as of Q4FY22 (18.5% of total employees) vs 496 in Q4FY21.

Updates on technology, product and business efficiency: The company underlined initiatives towards “surgical fixes”, “major re-writes” and “ruggedisation” of current live apps and key backend services as well as steps taken to build upcoming Super App. The minimum viable product of the modernised back end will go live in Super App. The improving client experience is being illustrated by the company through lower contact ratio, improved net promoter score (80% QoQ) and maintaining Google Playstore rating QoQ. Some key achievements include 2x growth in conversion rate for Insta-Trade, 50% reduction in rejection for delivery orders, 90% reduction in latency of key modules like MF, reports, passwords, advisory, IPO, etc. Wealth management solutions have also been introduced on Angel BEE mobile App.

Upgrade FY23E/FY24E earnings by 2%/4.2%; recommend BUY: We find comfort in 1) strong traction in brokerage revenue as seen from monthly trends (average monthly brokerage in Q1FY22/Q2FY22/Q3FY22/Q4FY22 was Rs651mn/771mn/915mn/1,073mn); 2) strong client acquisition momentum (gross clients added in Q4FY22 were 1.5mn vs 1.2mn / 1.27mn / 1.3mn in Q1/Q2/Q3FY22; NSE active clients stood at 3.7mn in Q4FY22 vs 2mn in Q1FY22, 2.5mn in Q2FY22 and 3.1mn in Q3FY22; (3) significantly higher valuation multiples for capital market players like CAMS, CDSL, AMCs and (4) available optionalities in terms of distribution / AMC business under the umbrella brand Ängel One. We factor in FY23/FY24E earnings growth of 15% each to Rs7.2bn/8.3bn.

We believe increased retail footprint in capital markets provides enough levers for countering apparent cyclicality in retail volumes. This can make earnings trajectory of capital market plays less sensitive to market volatility and potentially lead to increase in valuation multiples, in our view. Please see our sector thematic on the same (link).

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