Weak market, premium valuations and the emergence of discount broking model may have spoiled the party for Angel Broking
The trading premium of Angel Broking IPO in the grey market has fallen drastically in the last few days, but other IPOs namely Computer Age Management Services and Chemcon Speciality Chemicals have remained resilient.
The retail broking house was available at a premium of more than Rs 100 over its issue price band of Rs 305-306 per share, but now it is available at just Rs 10-15 premium over IPO price.
On the other hand, Computer Age Management Services' grey market premium, which was around Rs 400 initially, has now stabilised around Rs 250-300 per share over IPO price of Rs 1,229-1,230 per share and Chemcon has not seen much change in the grey market premium either.
Why has Angel Broking fallen from grace?
According to experts, the general weakness in the market has downplayed the public issue of the broking house. Another reason is the emergence of discount broking model and rising competition in the broking industry. As a result, the margin has been reduced to high single digits.
"Broking in India has become a hyper-competitive industry with many players. Off late, with the emergence of discount broking model and many new players, the industry has become overcrowded. With this, the growth that Angel Broking can garner for itself seems pretty limited. Also, overall market sentiments have been quite negative for the past one week because of the global outlook," Gaurav Garg, Head of Research at CapitalVia Global Research told Moneycontrol.
Prashanth Tapse, AVP Research at Mehta Equities also said, "If we look at the broking business as an industry it is now under pressure with high single-digit margins and trending low from last few years."
The industry also faces low entry barriers risk as new entrants can change the business dynamics drastically as witnessed in the case of Zerodha.
Tapse had recommended investors to "give a miss" to Angel Broking IPO and said the scrip may offer better value post listing.
Manali Bhatia of Rudra Shares also had recommended avoiding the IPO as the fundamentals of the company are not too attractive. Despite robust clients base growth at a CAGR of 36.81 percent during FY18 to Q 1FY21, the revenue have declined over years. The company has generated negative cash flow from operations during Q1 FY21 and the ratios also do not look appealing, Bhatia said.
Angel Broking launched its Rs 600-crore public issue on September 22. The issue was subscribed 4 times, much less compared to what other IPOs have witnessed recently.
Experts said that another reason for a less-than-stellar issue could be the valuation comfort which is much less compared to other IPOs like Happiest Minds, Route Mobile, Chemcon and CAMS. Also, less diversification in Angel's business compared to other listed players in the same industry may have also kept investors at bay.
"Weakness in markets coupled with no wow factors for aggressive subscription as nothing is left on the table for retail investors for healthy listing gains which were seen on listing day in Happiest Minds and Route Mobile. Overall valuations are ok and not so attractive at the issue price of Rs 306, vis-à-vis compared to other listed players like IIFL, ICICI Direct & Motilal Oswal Financial Services who have a diversified business compared to Angel Broking," Prashanth Tapse said.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.