Buy Angel One Ltd For Target Rs.3,200 By Motilal Oswal Financial Services Ltd
In-line revenue; high C/I ratio leads to PAT miss
* Angel One reported total income of INR9.9b, up 19% YoY/down 18% QoQ and largely in line with our estimate. The sequential decline was owing to the impact of F&O regulations and True-to-Label regulations on other income. For 9MFY25, total income grew 45% YoY to INR33b.
* Total operating expenses grew 23% YoY (13% higher than est.), leading to a CI ratio of 58% vs. 56% in 3QFY24 (vs. our est. of 52.6%), driven by higher-than-expected admin and other expenses. The elevated C/I ratio resulted in PAT of INR2.8b (+8% YoY), 11% below our estimate. For 9MFY25, PAT grew 27% YoY to INR10b.
* The number of orders stood at 422m in 3QFY25, up 20% YoY/down 14% QoQ and largely in line with our estimate. MTF book continued to scale up and was at INR43.3b (up 4% QoQ/118% YoY) at the end of 3QFY25. The distribution business witnessed the highest SIP registrations in Dec’24 (~0.9m) and cumulative credit disbursements of INR6b as of Dec’24.
* Management expects the impact from various regulations to be in the range of 18-20% on net income vs. 14% guided earlier. The impact was due to the bunching up of all monthly expiries on one day vs. the earlier anticipation of spread-out monthly expiries.
* We have cut our EPS estimates by 7%/5%/13% for FY25/26/FY27, factoring in a weak cash market, an elevated cost structure and a steeper decline in F&O orders. Upsides could arise from revenues in new segments, which we are yet to factor in. We have cut our target multiple owing to the weaker-than-expected impact of cash brokerage introduction and uncertainty around the price hike to tackle the F&O regulation impact. We have revised our TP to INR3,200 on 17x Sep’26E EPS.
Revenue impacted by multiple regulations
* Due to the F&O regulations implemented in Nov’24, Angel One recorded an 11% QoQ decline in F&O orders to 309m and 13% QoQ decline in F&O brokerage to INR6,627m (9% beat). Revenue per order declined to INR21.4 (INR21.7 in 2QFY25).
* Weak market sentiment resulted in a 24% QoQ decline in cash orders to 89m and a 19% QoQ decline in cash brokerage to INR982m (29% miss). Revenue per order increased QoQ to INR11, driven by the recent introduction of brokerage in cash segment.
* Commodity orders remained flat QoQ in 3QFY25 at 23m, resulting in 2% QoQ growth in commodity brokerage to INR573m (6% miss).
* Net interest income stood at INR2.7b, up 50% YoY/down 6% QoQ (8% beat). Avg. client funding book stood at INR40.5b vs. INR18.6b in 3QFY24.
* Other income declined 31% YoY to INR963m (21% miss) largely due to the impact of True-to-Label regulations on ancillary transaction income.
Profitability impacted by investment in new business segments
* Total operating expenses grew 23% YoY but declined 5% QoQ (13% higher than expectations). On a sequential basis, the CI ratio increased to 58% in 3QFY25 (vs. our expectation of 52.6%).
* Employee costs rose 68% YoY to INR2.4b (5% below est.), while admin and other expenses grew 5% YoY (29% higher than est.), despite a 30% sequential decline in gross client acquisition to 2.1m in 3QFY25. This was due to higher spends on branding, an increase in CSR expenses and continued investments in new businesses.
* EBITDA margin stood at 42% vs. 44%/49.9% in 3QFY24/2QFY25 (vs. our est. of 47.4%).
Highlights from the management commentary
* The company is in wait-and-watch mode for 1-2 quarters to observe the permanent impact on lifetime value due to new regulations and will take an informed call on using levers like pricing, if operating margin of 50% cannot be maintained.
* The increase in lot sizes can result in high cash activity from investors, which can boost growth as Angel One has started charging cash brokerage.
* Going forward, the majority of fixed expenses have already been taken care of, apart from the expenses related to the new CEO appointment. Further spends will depend on business growth and the customer acquisition strategy. The IPL spend run rate depends on responses before the start of the season.
Valuation and view
* Angel One has demonstrated the ability to protect its profitability by taking corrective pricing actions to offset the impact of true-to-label charge regulations. However, the timing of usage of levers to offset the impact of F&O regulations remains uncertain. Investments in new business segments have kept the cost structure elevated and we are yet to factor in upsides that could arise from revenues in new segments.
* We have cut our EPS estimates by 7%/5%/13% for FY25/26/FY27, factoring in a weak cash market, an elevated cost structure and a steeper decline in F&O orders. Upsides could arise from revenues in new segments, which we are yet to factor in. We have cut our target multiple owing to a weaker-than-expected impact of the cash brokerage introduction and uncertainty around the price hike to tackle the F&O regulation impact. We have revised our TP to INR3,200 on 17x Sep’26E EPS.
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