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Small & Midcap Mantra | This stock broking company clocked 4-fold gains in one year, could add 20-30% by FY22-end

The stock has gained because of a significant increase in new investors, lower brokerage charges, and a focus on artificial intelligence and machine learning to drive business

September 24, 2021 / 11:01 AM IST
 
 
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Angel Broking shares have delivered solid returns to investors in the almost one year since debuting at a 10 percent discount to its initial public offering price on October 5, 2020. Among stocks that have listed since October last year, Angel Broking is the third-biggest gainer – after Laxmi Organic Industries and Nureca.

The stock broking company’s shares, offered for Rs 306 in the IPO, consolidated in a range of Rs 300-360 for a little more than six months after its market debut and picked up momentum from mid-April until now. The shares have quadrupled from the issue price and closed at Rs 1,246.85 on September 23.

Analysts attribute the share price rally to the company’s transformation from a traditional broker to a digital broker, a significant increase in new investors, a reduction in branch costs that resulted in lower brokerage charges, and a focus on artificial intelligence and machine learning to drive business.

Angel Broking is the largest listed retail stockbroking house in India by active clients on the National Stock Exchange. It is a technology-led financial services company that provides broking and advisory services, margin funding, loans against shares, and distribution of third-party financial products to clients under the master brand Angel Broking.

The company changed its name to Angel One Ltd. on September 23, 2021.

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“A significant part of the growth is attributed to the company’s transformation into a digital-first and fintech business model. Also, the company has… seen the highest ever addition of clients in Q1 of FY22,” said Astha Jain, a senior research analyst at Hem Securities.

Atish Matlawala, a senior analyst at SSJ Finance & Securities, said Angel Broking has adapted to meet the challenges presented by discount brokerages over the past two years.

“It has transformed itself from a traditional broker to a digital broker. It has reduced its branch cost and thus is able to offer clients the lowest brokerage,” he said. “Most of its business is driven by artificial intelligence and machine learning-driven client engagement and services. We have seen demat accounts rising in the last two years… We believe this trend will continue for at least the next couple of years.”

Angel Broking uses AI and ML extensively to create a superior digital experience. It has built a host of digital properties like Angel Broking Mobile App, Angel BEE Mobile App, ARQ Prime, a rule-based investment engine, SmartAPI, a free-to-integrate API platform, Smart Money, an investor education platform, and Smart Store, a marketplace for fintech products, learning platform and social forums for over 5 million clients.

Gaurav Garg, head of research at CapitalVia Global Research, said the rally in the Angel Broking stock has indeed been phenomenal.

“In the past year, the increased number of new investors has been a major reason for the rally in this space overall,” said Garg.

Client addition, earnings

Angel Broking added 1.2 million clients in the first quarter of FY22 – the highest so far – registering growth of 26 percent QoQ and more than tripling from a year earlier.

Investor confidence was boosted by a 21 percent sequential growth in average daily turnover to Rs 4.5 trillion, with trades aggregating over 248.5 million (up 14 percent QoQ) in the first quarter and a 26 percent QoQ increase in average client funding book size to Rs 12.2 billion.

In the June quarter, total income climbed 92 percent YoY and 13 percent QoQ to Rs 474.5 crore, aided by strong growth in the client base and high client activity. Profit after tax increased 19 percent QoQ and more than doubled YoY to Rs 121.4 crore.

Earnings before depreciation, amortisation and tax (EBDAT) at Rs 166.3 crore grew 14 percent sequentially and the margin remained stable at 49 percent compared to the March quarter.

Can the stock rally another 20-30%?

With Angel’s plan to launch a super app to facilitate client access to all products and services, the company is poised to cater to the opportunity in the sector, said Jain of Hem Securities, who recommended a ‘hold’ on the stock with a price target of Rs 1,390 to Rs 1,480 in the medium term.

According to a technical analysis, the stock has broken out of a Flag pattern on the daily charts and formed a pennant pattern on the weekly charts, Garg said.

“Therefore, we expect the stock to add 20-30 percent by the end of CY21 or the first month of the fourth quarter of FY22,” he said. “At the current P/E of around 27, the stock does not seem very expensive.”

Matlawala of SSJ Finance is positive on Angel Broking.

“It is difficult to predict stock prices in the short term, but on a longer-term basis, we believe the stock can deliver 25 percent+ CAGR growth for the next 3-5 years,” Matlawala said.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before making any investment decisions.
Sunil Shankar Matkar
first published: Sep 24, 2021 10:51 am

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