ANGEL BROKING LIMITED : FINDING A WAY TO ‘HEAVENLY PROFITS
Riding on the digital wagon that has influenced equity investing among the millennials, the company has been able to garner 398 million digital impressions in June 2020 on various online and digital platforms through the application of digital marketing. Its customer outreach spans across approximately 96.87 per cent or 18,649 pin codes in India as of June 30, 2020, which is evidence enough of its growth curve
Angel Broking is one of the largest retail broking houses in India in terms of active clients on the NSE as of June 30, 2020. The company is a technology-led financial services company that provides broking and advisory services, margin funding, loans against shares through one of their subsidiaries called AFPL and financial products’ distribution to its clients under the brand ‘Angel Broking’. The broking and allied services are offered through online and digital platforms and a network of over 11,000 authorised persons as of June 30, 2020. The company has reported more than 4.39 million downloads of its Angel Broking mobile application and close to 1 million downloads of Angel BEE mobile application as of June 30, 2020, which eases the digital availability of its services.
The company has been able to garner 398 million digital impressions in June 2020 on various online and digital platforms through the application of digital marketing. The company’s customer outreach spans across approximately 96.87 per cent or 18,649 pin codes in India as of June 30, 2020. It manages Rs 1,32,540 million in client assets and over 2.15 million operational broking accounts as of June 30, 2020. Angel Broking is a member of the Bombay Stock Exchange (BSE), National Stock Exchange (NSE), Metropolitan Stock Exchange of India (MSEI), National Commodity and Derivatives Exchange (NCDEX) and Multi-Commodity Exchange (MCX).
It is also registered as a depository participant with Central Depository Services (India) Limited (CDSL). The company has the experience of over two decades which has helped it to integrate knowledge and expertise in the broking industry with technology, and thereby cater to the needs of customers with high quality. The company has enhanced the engagement and experience of clients via the launch of its mobile application for broking services in 2011, KYC authentication and complete client on-boarding through the electronic and digital media in 2015 and 2016.
Sector Overview
Of late the Indian brokerage industry has shown a transition from being a percentage-led business model to a flat brokerage and subscription-based model. The average daily turnover (ADTO) has grown from Rs 14.4 lakh crore in Q3FY20 to Rs 31.1 lakh crore in Q3FY21, doubling the growth rate. On a gradual basis, awareness and accretion regarding equity class of investment can be sensed from the millennials. Also, relative underperformance depicted by a large number of mutual fund schemes coupled with low yields in fixed income asset classes has led to significant participation from ‘new to market’ customers based in Tier II and below cities. The industry has witnessed a 67 per cent client addition on a year-on-year basis.
The discount-based brokers have witnessed a majority of inclination by incremental clientele along with ADTO. The traditional brokers have also pulled up their socks by offering competitive fixed brokerage plans and hence fading the earlier line. Even the bank-led brokers like Kotak Securities or Axis Securities are offering low brokerage plans. Traditional brokers like Angel Broking and Sharekhan are also joining hands with them. According to the SEBI norms, the norms regarding peak margin pose a likely impact on the industry as the upfront margin requirement will eventually rise to 100 per cent from September 2021 onwards. But this impact can be seen as a positive structural change and may not last long.
Financial Overview
On a quarterly consolidated financial front, the income from interest was reported at Rs 52.11 crore for Q4FY21, which is an increase by 58.14 per cent as compared to Rs 32.95 crore reported for Q4FY20. The total income calculated for Q4FY21 rose by 14.95 per cent to Rs 9.61 crore from Rs 8.36 crore in Q4FY20. For Q4FY21, the company reported net profit of Rs 99.71 crore as against net profit of Rs 35.05 crore gained in Q4FY20, registering massive gains. On the annual front, for FY21 the company posted interest income of Rs 169.22 crore, which is an increase by 13.57 per cent compared to Rs 148.99 crore for FY20. The total income for FY21 rose by 73.63 per cent to Rs 1,289.74 crore from Rs 742.77 crore for FY20. For FY21, the company reported net profit of Rs 290.39 crore as against net profit of Rs 86.62 crore gained in FY20.
The company witnessed 87 per cent gross client addition on a quarter-on-quarter basis and 322 per cent on a year-on-year basis. The company’s share in incremental dematerialisation accounts saw an increase of 245 bps on quarter-on-quarter basis and 561 bps on a year-on-year basis. As compared to the previous quarter, the number of trades went up by 33 per cent in Q4FY21 as compared to Q3FY21 whereas the average daily turnover for the quarter went up by 66 per cent in Q4FY21. The company’s retail equity turnover market share witnessed growth of 468 bps in Q4FY21. The total gross revenues rose by 33 per cent on a quarter-on-quarter basis and 72 per cent on a year-on-year basis.
The company has expanded its market share by 1.7 times’ from 4.8 per cent in Q1FY20 to 8.3 per cent in Q4FY21. Also, the company has registered 25 times’ growth in incremental NSE active client base from 7.8 per cent in Q1FY20 to 11.9 per cent in Q4FY21. As regards the segment-wise growth of the company, over the last eight quarters it has shown a 5.6 times’ growth in overall equity market share whereas the futures and options market share accelerated by 6.2 times. The cash market share and commodity market share accelerated by 1.3 times and 2 times respectively over the last eight quarters. The company reported that 94 per cent of the gross client addition was contributed by Tier II and III cities in Q4FY21.
Conclusion
India is currently an underpenetrated market in terms of the broking sector. The country is witnessing rising penetration of dematerialisation accounts at 4.1 per cent in FY21 as compared to 3.1 per cent in FY20. The growth in dematerialisation accounts is registered at 12.8 per cent CAGR over FY13 to FY21. FY20 to FY21 has seen growth of 35 per cent year-onyear. As of December 2019, China had 11.4 per cent dematerialisation accounts out of the total population. On the other hand, in 2018, USA had 32 per cent dematerialisation accounts out of the total population. This implies that India has long-term growth potential and a 2.8 times’ medium-term growth potential. The digital brokers are well-placed to capitalise on these opportunities.
Angel Broking has made its way to be in the top quartile among digital brokers. This digitalisation has facilitated expansion in the overall market. The Tier II and III cities are showing signs of contributing to driving growth in this sector. The top five digital brokers have grown at a pace of 5.1 times over the last eight quarters, which is two fiscal years. Majority of incremental NSE active clients are owned by digital brokers. Digital brokers with open architecture and digital properties build a wide reach, thereby gaining market share. The average client funding book of Angel Broking was Rs 7,164 million in FY21. Besides, the company declared 35 per cent dividend payout for FY21. The strong financial performance depicted by the company was backed by the operating leverage witnessed by it during FY21.
Due to the implementation of new margin requirements, the company’s average monthly net broking income stood at Rs 633 million in March 2021 whereas it stood at Rs 596 million in Q4FY21. The company also developed an interface within its app to notify clients about their margin requirements. The technology adoption has created business flexibility for the broking companies. There was 15 per cent decline in rightsizing the overall employee base since the first quarter of FY20. On the other hand, there was 39 per cent growth in scaling up its digital-focused talent pool since the first quarter of FY20. Hence, considering the untapped opportunities in the broking industry and the steps taken for contribution to growth and expansion by leading players like Angel Broking, we recommend BUY.