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Weak quarter not due to any concerning factors

Result Highlights (See “Our View” below for elaboration and insight)

* Revenue: Net Revenue at Rs. 8,258mn was up 1.4%/46.4% QoQ/YoY, where the net fees and commission income has de-grown/grown by -1.6%/43.8% QoQ/YoY

* Client Base: The total client base stood at 19.5mn up by 14%/56% QoQ/YoY and the NSE active client base was at 5.3mn up by 8.2%/26.2% QoQ/YoY

* Volume: The total order volume was 350mn, up by 3.6%/54.9% QoQ/YoY where the F&O volume was at 262mn, down/up by -0.8%/52.3% QoQ and YoY

* Client Funding Book: The average client funding book stood at Rs. 18,590mn, and have grown by 32.1% QoQ and 31.3% YoY

* Operating profit margin: Operating profit margin for the quarter, at 43.9%, was down -733 bps QoQ and -912 bps YoY

Our view – Broking revenue subdued to due to non-structural factors, while expenses spike due to client acquisition and other investments

Reasons for sequential decline in gross broking revenue were rise in share of Cash segment and subdued Derivatives segment: Gross broking revenue was down -2.6% QoQ to Rs 7,084 mn. The cash segment orders have grown by ~20% QoQ, to 74mn. Furthermore, the share of delivery within the cash segment has increased during the quarter. Also, in Q2FY24 the company has revised its tariff for intra-day cash segment from 0.25% or Rs 20 per order, whichever is lower to 0.03% or Rs 20 per order, whichever is lower. The company stated that they regard themselves as market makers and aim to attract new types of customers. F&O orders have declined -0.8% QoQ to 262mn. The third quarter of the financial year is seasonally a bit subdued for the industry due to festivals and other factors. The derivatives revenue has also been impacted due to the number of trading days being lesser by 3 days, translating to an impact of 3-4%. The revenue per order has also declined due to the share of flat fee clients moving up compared with traditional clients.

Other opex at Rs 3.2bn is up 21% QoQ due to the highest ever client acquisition which led to one-time client acquisition and onboarding cost: Importantly, the cost of acquistion has not increased and the CAC to LTV has remained steady in a range of 75- 80%. Employee cost at Rs 1.4bn was up 6.5% QoQ due to addition of head count in asset management business, data and analytics, technology and operations functions, etc. Finance cost was higher by 35% QoQ to Rs 356mn due to higher average borrowings.

We maintain ‘BUY’ rating on Angel One with a revised price target of Rs 4200: We value the broker at 28x FY25 P/E for an FY23-26E EPS CAGR of 19%.

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