Buy Angel One; target of Rs 2000: Motilal Oswal

Motilal Oswal's research report on Angel One

India is currently at the initial phase of a multi-decadal trend of financialization of savings. Over the course of this decade, India is expected to transform into a nation of investors, characterized by the availability of sophisticated financial products, robust capital markets, and a progressive regulatory regime. ANGELONE, in its FY23 annual report, has re-iterated its vision to empower millions of individuals to participate in investing digitally and benefit from India's growth story. This vision is reflected in ANGELONE's Super App Strategy, which aims to go beyond traditional broking services and develop innovative solutions, which will be instrumental in unlocking future growth opportunities. The robustness of ANGELONE's fintech model demonstrates a healthy LTV:CoA of 7.8x based on the first three years of aggregate client revenue. As clients increase their engagement on the platform, the LTV:CoA will have a long runway of growth. Various technological initiatives have helped ANGELONE reduce its computation and load time by 7x. The Super App continues to be the face of the company, emphasizing client engagement and generating long-term value for its customers. The Super App has established a strong groundwork for incorporating additional client journeys. Currently, brokerage and allied activities contribute ~95% of the company's revenues. Over the long term, diversification will accrue as Angel enhances its distribution income. The company's PBT margin expanded to 52% in FY23 from 25.5% in FY20, primarily driven by scale benefits and effective cost-control measures. Core to Angel's growth strategy has been its customer acquisition initiatives, wherein, it has targeted the Millennial and Gen Z population in tier 2 and tier 3 towns. As a result, the share of tier 2 and tier 3 towns in its gross customer additions has surged to 94% in FY23.

Outlook

We expect it to maintain a cost-to-income ratio around the 50% mark in the medium term. This is because the incremental cash flows will be invested toward employee additions, technology enhancements, and customer acquisitions. We reiterate our BUY rating on the stock with a revised TP of INR2,000 (premised on 14x Mar'25E EPS).