Angel Broking - Business momentum intact for strong earnings growth - ICICI Securities

Angel Broking (ABL) has successfully maintained its business momentum in Q2FY22 with 80%/11% YoY/QoQ PAT growth. We estimate PAT to clock 37% CAGR between FY21-FY23E and value the stock at 22x FY23E EPS of Rs74 (Rs58 earlier). We introduce FY24 with eps estimate of Rs84.3 Maintain BUY with a revised target price of Rs1,630 (Rs1,284 earlier).

• Q2FY22 earnings register 11% QoQ growth. Flat fee revenue grew 20% QoQ to Rs1.85bn in Q2FY22 while traditional revenue declined 9% QoQ. Overall brokerage revenue grew 12.5% QoQ (similar for direct/authorised person (AP) segment). Interest income (including MTF) grew 29% QoQ. Overall operating costs increased 17% QoQ with employee/other expense growing 16%/17%, respectively. EBITDA margin declined 141bps QoQ to 47.4% in Q2FY22. While employee cost increase can be primarily attributed to key leadership hires in digital team, increase in other expense could be due to higher cost of acquisitions. Within gross brokerage, derivatives mix has improved sharply to 69% in Q2FY22 from 63% in Q1FY22 and 60% in Q4FY21, while share of cash has declined to 26% in Q2FY22 from 31% in Q1FY22 and 33% in Q4FY21.
• Incrementally noteworthy business parameters include (1) gross clients added were 1.27mn in Q2FY22 and 2.48mn in H1FY22 with 93% of additions from tier-3/4 cities, (2) client vintage remains new with less than 2-year-old client mix contributing 75% of brokerage revenue in Q2FY22, (3) continued growth in number of trades (15.6% QoQ and 81% YoY) and app installs (15.4mn in Q2FY22 compared to 12.6mn in Q1FY22, (4) low median age of clients acquired (29 years), (5) 11 key hires in digital team to aid product development and drive future growth. The digital focused talent pool stands at 603 as of Q2FY22 (18% of total employee count) compared to 388 in Q2FY21 and (6) superior risk adjusted returns through ARQ prime (ARQ prime generated 183% returns between Sep'19 and Sep'20 as against 54% of BSE 100 and 89.6% of Nifty Midcap).
• Upgrade FY22/23E earnings, maintain BUY: We find comfort in (1) strong traction in brokerage revenue as seen from monthly trends. Average monthly brokerage in Q1FY22/Q2FY22 was Rs651mn/771mn while Sep'21 monthly brokerage was Rs834mn, (2) strong client acquisition momentum (gross clients added in Q2FY22 were 1.3mn vs 1.2mn added in Q1FY22 & NSE active clients stood at 2.5mn in Q2FY22 vs 2mn in Q1FY22), (3) significant higher multiples of capital market players like CAMS, CDSL, AMCs. While retail trading volumes could be cyclical which may make earnings volatile for ABL, same hypothesis is also true for exchanges and depositories and (4) available optionalities in terms of distribution/AMC business under proposed umbrella brand 'Ängel One'. We upgrade FY22/23 earnings by 20%/27% to Rs5.1/6.1bn.

Shares of Angel Broking Limited was last trading in BSE at Rs. 1303.10 as compared to the previous close of Rs. 1311.00. The total number of shares traded during the day was 30494 in over 3085 trades.

The stock hit an intraday high of Rs. 1350.00 and intraday low of 1277.00. The net turnover during the day was Rs. 39798119.00.

Source : Equity Bulls

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AngelBroking INE732I01013 ANGELBRKG ICICISecurities