After a brief pause, September is buzzing with activity in primary markets. In this series, Angel Broking is coming up with its maiden public offer today. There are several factors which distinguish the company from its competitors and we captured some of them in this article. Through this detailed Angel Broking IPO review, we try to find out if it is good enough to be in investors’ portfolio.
Angel Broking IPO details
| Subscription Dates | 22 – 24 September 2020 |
| Price Band | INR305 – 306 per share |
| Fresh issue | INR300 crore |
| Offer For Sale | INR300 crore |
| Total IPO size | INR600 crore |
| Minimum bid (lot size) | 49 shares |
| Face Value | INR10 per share |
| Retail Allocation | 35% |
| Listing On | NSE, BSE |
Angel Broking IPO Analysis: Offer objectives & Capital structure
The company plans to raise as much as INR300 crore by issuing fresh shares and these funds are proposed to be used towards:
- To meet working capital requirements – INR230 crore
- General corporate purposes
The OFS component is also worth INR300 crore and participating in the sale are IFC (INR120 crore), Ashok Thakkar (INR18.33 crore), Sunita Magnani (INR4.5 crore).
Angel Broking IPO Review: Business Background
The company is a well-known name in the Indian securities broking industry and is one of the largest retail broking houses in India in terms of active clients on NSE. In terms of hardcore numbers, it is the fourth largest in terms of NSE active clients, and second largest in terms of incremental NSE Active Clients during Q1FY20201. Angel Broking also has the largest number of authorized persons with NSE amounting to 11,000.
At the same time, digital has been the pillar of strength for the company as far as its expansion in recent years is considered. The company’s digital transformation efforts resulted in a mobile application, and introduction of e-KYC Services and UPI in investing. As a result, 85.21% of the clients added by the company during the latest quarter were acquired through digital channels.
Its operational client base grew steadily from 1.06 million at the end of FY2018 to 2.15 million on 30 June 2020. Fresh tailwinds were received during the latest quarter as trading volumes jumped amid a nationwide lockdown due to Covid-19 pandemic. Angel Broking’s average daily turnover surged from INR253,176 million in Q1FY2020 to INR618,945 million in Q1FY2021. Over the long term too, the company has consistently expanded its market share in terms of retail turnover with Cash Market Share increasing to 17.3% in Q1FY2021 from 8.5% in FY2018, F&O Market Share increasing to 7.8% in Q1FY2021 from 2.9% in FY2018; Commodity Market share increasing to 24.6% in Q1FY2021 from 8.8% in FY2021.
Angel Broking IPO Review: Financial Performance
A look at the company’s financial statements for the last three years and latest quarter reveals Angel Broking has made substantial progress towards achieving balance in its operations and boost profitability. At the first glance, it appears the company’s business has contracted in recent years. However, the decline is attributable to reduction in other revenues such as interest from lending activities, income from depository operations, portfolio management services fees, and income from distribution activity. Its brokerage income actually increased from INR478.5 crore in FY2018 to INR503.9 crore in FY2020 and to INR178.1 crore in Q1 FY2021.
At the same time, closure of certain businesses and aggressively paying down debt has resulted in better margins. Angel’s debt/equity ratio moved from 2.4 in FY2018 to less than 1 in FY2020.
Angel Broking’s financial performance (in INR crore)
| FY2018 | FY2019 | FY2020 | Q1 FY2021 | |
| Revenue | 780.0 | 784.1 | 754.7 | 246.6 |
| Expenses | 620.0 | 655.9 | 635.9 | 182.0 |
| Net income | 107.3 | 79.6 | 81.4 | 46.9 |
| Net margin (%) | 13.8 | 10.2 | 10.8 | 19.0 |
Angel Broking IPO Review: Subscribe or Avoid?
As seen above, there are several positives in the way Angel Broking has evolved in recent years. as we highlighted earlier, broking is a cyclical industry and Angel’s strategy of trimming down of non-core operations, focus on digital channels for user acquisition and switch to a flexible brokerage model demonstrate refined thinking in the management. Angel’s performance becomes especially impressive amid the onslaught of discount brokers – a trend that has resulted in lower market share for most other brokers. Amid this megatrend, Angel Broking has not only survived but has actually thrived. Between FY2015 and FY2020, its user base has increased at a CAGR of 29%, which is significantly higher than other full-service brokers including ICICI Securities, HDFC Securities, and Kotak Securities.
Eventually, valuations play a big role in an investment decision and Angel Broking needs to be tested on this yardstick. The company’s FY2020 EPS stood at INR11.44 which means that the company’s IPO PE ratio is in the range of 26.66 – 26.75. Although the company’s performance in the latest quarter was exceptionally well, we are not considering it. The valuation thus derived is in line with players like ICICISecurities, although higher than smaller players like Geojit Financial Services and IIFL Securities. Considering the way Angel Broking has performed in recent years, this premium appears justified. Its Return on Net Worth (RONW) for FY2020 at a respectable 13.92%.
As India’s retail participation in stock markets is quite less when compared with other similar countries, it is clear that the business has the advantage of a long runway of growth. While we can’t say the same for other players, Angel Broking appears to be on the right track in effectively and efficiently tapping digital channels for customer acquisition.
Overall, Angel Broking turns out to be an interesting play on financialization of savings theme and the fact that it has demonstrated execution capabilities sets it apart from competition. The IPO also enjoys premium in the grey market which indicates interest and demand of HNI investors.
There is a lot of talk on social media about Angel Broking’s customer complaints on hidden charges, delayed payments, system lags etc. This puts a blur on it’s record and credibility.