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Robust performance in a volatile equity market

Angel One (Angel)’s PAT grew 24% QoQ and 101% YoY to INR2b (17% beat) in 4QFY22. The beat on profitability was driven by an 11% beat on operating revenue, which rose 16% QoQ and 77% YoY to INR4.1b. Key contributors were a 13% beat on net revenue from the Broking segment and a 6% beat on net interest income.

The active client ratio improved substantially in 4QFY22 to 40.2% from 39.7% in 3Q. Number of orders rose to 221m in 4QFY22 from 180m in 3Q.  Angel’s operating expense stood in line at INR2.3b. CIR improved substantially to 45.1% (est. 49.3%) v/s 49% in 3QFY22 and 51% in 4QFY21.

For FY22, Angel reported revenue of INR16.8b (+87.6% YoY), while its PAT more than doubled (+109.8% YoY) to INR6.3b. The cost-to-income ratio stood at 49.2% v/s 52.1% in FY21.

We raise our earnings estimates for Angel by 7%/11% in FY23/FY24, respectively, backed by a higher-than-expected revenue and strong margin performance in 4QFY22. We maintain our BUY rating with a revised TP of INR2,300 (premised on 20x FY24E EPS).

Beat led by Broking and interest revenue; F&O share continues to rise

Angel’s operating revenue grew by a strong 16% QoQ and 77% YoY to INR4.1b (11% ahead of our estimate), driven by healthy Broking revenue and interest income. Growth in the Broking business was propelled by the F&O segment, which rose strongly to INR3.7b (up 117% YoY and 21% QoQ), whereas revenue from Cash Broking fell 9% YoY and 6% QoQ to INR857m. The share of the F&O segment in gross Broking revenue further increased to 78% in 4QFY22 from 74% in 3Q.

Although the share of flat fees in total net income rose 2x to 83% in 4QFY22 (from 43% in 4QFY20), average revenue per client (ARPC) dipped 0.2x, demonstrating the robustness of the business. On a quarterly basis, the ARPC declined to INR513 in 4QFY22 from INR528 in 3Q.

Angel’s other income rose in line by 10% QoQ and 43% YoY to INR1b.

Lower admin costs drive improvement in the CI ratio

Total OPEX grew in line by 5% QoQ and 48% YoY to INR2.3b. Operating efficiencies have started to play out, with CIR down 45.1% v/s 51.5% YoY.

Employee costs escalated 49% YoY, but fell 4% QoQ to INR749m (16% below our estimate). In 4QFY22, Angel hired one more member in its digital team, taking its digital talent pool to 610. Employee cost, as a percentage of operating revenue, contracted sequentially and stood at 15% for 4QFY22.

Administration costs rose 10% QoQ to INR1.5b (11% above our estimate).

Highlights from the management commentary

Angel’s FY22 ESOP cost stood at INR160m. Further, from FY23 the ESOP cost is expected to be around INR0.60b p.a. for a period of four years. In addition, the employee costs will include regular salary increments.

With the right product suite, Angel will now start investing more towards brand visibility. Therefore, on a YoY basis, the company’s investment cost for FY23E shall be on a higher side.

Higher revenue and improved CI ratio provide strong earnings visibility; BUY

Angel is a perfect play on: 1) the financialization of savings and 2) digitization. The company demonstrated strong performance across key operating parameters in 4QFY22. As guided, the management continues to invest in technology and strengthen its position. We believe the client addition trajectory for the industry as well as for Angel would continue, led by sharp underpenetration. Further, the cyclicality of revenue is much lower for discount brokers than traditional brokers due to the shift towards the flat fee revenue model. We raise our earnings estimates for Angel by 7%/11% in FY23/FY24, respectively, backed by higher revenue and better-than-expected CI ratio that the management expects to sustain. We maintain our BUY rating with a revised TP of INR2,300 (premised on 20x FY24E EPS), implying 20% potential upside

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