Angel Broking IPO: Details, valuations, management view and analyst ratings

At the upper end of the price band of Rs 305-Rs 306, the issue is asking for a valuation of 26.84 times FY20 earnings. Initial brokerage reports mostly have ‘subscribe’ ratings on the issue on reasonable valuations.

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It is pertinent to note that historically, most stocks of broking firms or those that offer broking services and have diversified into financial services have not delivered consistent returns on the bourses in last few years.
Mumbai/New Delhi: The under-penetration of equity investment is one thing that the Indian broking industry has always taken comfort from. The ongoing pandemic has hastened that penetration process, as suggested by a surge in demat accounts since work-from-home (WFH) culture took roots in March. Many traditional brokerages have floated discount broking models and invested heavily into technology to make most of the trend. Angel Broking’s forthcoming initial public offering (IPO) is a play on this industry-wide digitisation.

That said, investors do not share the same excitement over the fundamentals of the broking industry due to its over-crowded nature. The number of client additions did not help listed brokerage stocks make a strong recovery from March lows. ICICI Securities, the last IPO from the sector to hit the market in 2018, is ruling below its issue price of Rs 520.

Add to this the two IPOs – Warbug Pincus-backed CAMS and Chemcon Speciality -- which are up for subscription just before Angel’s issue, making investors wonder whether the latter is worth investing.


At the upper end of the price band of Rs 305-Rs 306, the issue is asking for a valuation of 26.84 times FY20 earnings. Initial brokerage reports mostly have ‘subscribe’ ratings on the issue on reasonable valuations.

Here’s what the management said:
Angel Broking filed the draft red herring prospectus in 2018. Chairman and Managing Director Dinesh Thakkar said the IPO took a while as the company waited for regulatory clearance and later revamped their business model into a digital one.

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“We have changed from physical (model) to digital model in FY20. We wanted that model to shape up. The market will appreciate it better if it understands the result of the digital model,” he told ETMarkets.com in an interview. “So, we thought let us get 12-month numbers, so that people can see and get a perspective on how successfully we have shifted/migrated to the digital model,” he said.

Thakkar said when the shift to digital happened last year, the brokerage on an average acquired 46,000 new clients per month. In the first quarter of FY21, it acquired 3,50,000 customers. The Covid-19-induced lockdown prompted many first-time investors to dabble in the stock market to make quick a buck.

“We are totally into digital when it comes to serving direct customers. Around 85 per cent of our (client) acquisitions are done digitally,” he said.

The brokerage firm started shutting down its brick-and-mortar branches across the country gradually since 2016, and is totally on the digital platform now with its customers, barring a few branch offices for the B2B businesses.
The entire stock broking industry has undergone substantial change over the past few years, with digitisation taking the centrestage, as trading through mobile apps has gained traction. Also, the entry of discount broking players such as Zerodha and the like, changed the landscape for the industry, and competitive pricing crimped already narrow margins.
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What do brokerages say:

Anand Rathi: Subscribe

The brokerage said the company’s emphasis on providing clients with services through technological platforms has enabled it to rationalise the cost incurred and offer a simplified and competitive pricing to clients along with value added services.
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It said the company's brokerage revenue accounted for 69.54 per cent of the total, whereas revenue from lending activities, income from depository operations, portfolio management services, income from distribution, and other activities formed 30.46 per cent of total revenue in FY2020.

“We believe Angel Broking’s IPO and OFS is fairly priced at the current price band, considering its financial performance and growth prospects. We recommend a ‘subscribe’ rating on the IPO," the brokerage said. It, however, noted that the company has not be able to report growth in revenues and profits in last three years.

ICICI Securities: Not rated

This brokerage said the stock is available at 29 times FY20 EPS on a post-dilution basis and 16 times annualised June quarter earnings. It noted that the augmentation of digital processes, and an all-inclusive flat pricing model have enabled Angel Broking to substantially grow average daily turnover (ADTO) to Rs 61,894.5 crore in June quarter, up 144.5 per cent over Rs 25,317.60 crore in the year-ago quarter. It noted that the company managed Rs 13,254 crore client assets and nearly 21.5 lakh operational broking accounts with a workforce of 2,500.

Other views:-
Some of the industry veterans sounded conservative on the issue.

“Every person has limited money. There are three IPOs next week, and if I have to pick two – Angel Broking would not feature on my list,” said Arun Kejriwal, Founder of Kejriwal Research & Investment Services. “There has been a rush of new investors across the industry, which is why the first quarter of FY21 was good for everyone and Angel Broking also reaped the benefits. However, the recent change in trading margins has definitely dented revenues for brokerages, and Angel Broking is no exception,” he said.

“I would give it to them that they are a very hi-tech, advanced company, but I am not sure if that alone can get you business. Derivative trades contribute a large portion of their revenues. While volumes are high in this category, the yield for the brokerage firm is low,” he said.

Vinay Agrawal, Director and CEO of Angel Broking, said the stockbroking business constituted 72 per cent of its revenues, while 16 per cent came in from interest income. Depository activities constituted 7 per cent of revenues.

Grey Market Trend
The premium for Angel Broking's unlisted shares has fallen to 16 per cent from 25 per cent earlier. It came down to Rs 50-55 on Monday from Rs 55-Rs 77 on Friday, the day the company announced the issue details. Brokerages dealing in unlisted shares felt Angel’s price band was Rs 25-30 higher than grey market expectations.

Angel aims to raise Rs 300 crore by issuing fresh shares and another Rs 300 crore via offer for sale (OFS) by existing shareholders, including International Finance Corporation (IFC), a World Bank arm.

The offer will close on September 24 and the funds raised from the OFS will be used for working capital purposes and to fund margin capital needs of customers.

Disappointing Industry Trend
It is pertinent to note that historically, most stocks of broking firms or those that offer broking services and have diversified into financial services have not delivered consistent returns on the bourses in last few years.

Shares of Edelweiss Financial Services have eroded 76 per cent value over last 3 years and 36 per cent over last one. Emkay Global has seen its shares drop 81 per cent over last three years and 2 per cent in last one.

Shares of Motilal Oswal Financial Services have dropped 48 per cent over last three years, and have delivered 14.8 per cent return in last one year.

ICICI Securities, which debuted in April, 2018, had a disappointing debut, as it logged a double-digit percentage decline in debut trade and languished for a while. Earlier, the company had to cut the IPO size to around Rs 3,520 crore from an earlier target of Rs 4,017 crore after due to low subscription during the share sale in March 2018.

However, the stock has picked up speed in last one year, and has delivered 106 per cent returns over last one year. But it still trades below issue price.
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