Angel Broking IPO Analysis

 

Angel Broking, the fourth largest broking firm in India, provides broking and advisory services, margin funding, loans against shares and financial product distribution to its clients according to the number of active client accounts on the NSE. The company offers its services through online and digital platforms in addition to a network of over 11,000 sub-brokers till June 2020. The company does a business of a flat fee-based model in which it charges zero for delivery and Rs 20 per trade. For intraday, F&O and commodity trades, it also provides margin funding up to 79.55 per cent of the purchase price by the customer. Margin trade funding is a type of business practice in which a broker lends the investor for cash or securities as collateral. An investor can make a profit using this facility and increase his profit.

Also read:Angel Broking IPO - Initial Public Offer Details

Company Strength

 

By scale and size, the company is the fourth largest retail broking house on the NSE with approximately 6.3 per cent active customers as of June 2020. With a network of over 11,000 sub-brokers with a digital presence, it is able to reach all over the country. In the last three years up to March 2020, Angel Broking has been successful in acquiring more than 80 per cent of its customers from Tier-2 cities. In-house research, the company also provides advisory services through its 54-member in-house research team. In addition, under ARQ Advisory, it provides rule-based investment advisory assistance, which is based on modern portfolio theory.

 

Company Weaknesses

 

The company's main revenue source is the broking business, which accounts for about 75 per cent of total revenue. Unlike other brokerage houses that have managed to diversify themselves into wealth management, advisory services and others, Angel Broking has not yet been able to do this diversification. Since the business model of broking firms has shifted to a flat fee-based model, the broking business has become more and less. New companies like Zerodha, Uptox, Grove, etc. backed by rival companies can easily take market share.

 

Risk Assessment

 

Regulatory risk, the company is subject to extensive supervision and regulation by various regulatory bodies. Any new changes introduced by the regulatory body can affect the business. For example, SEBI has recently made a drastic change in the margin-trading rules requiring a broking firm to collect margin upfront from customers for any sale or purchase in the equity segment. Its dependence on macro-economic factors, the brokerage business mainly depends on the number of orders placed and trading volume, which is offset by external factors such as general economic conditions, capital market performance, monetary policies and interest rate fluctuations. Many are affected. Technology-driven broking firms are now engaged in using artificial intelligence, machine learning, and data analytics to use client data and offer them even more differentiated services. However, stringent data privacy laws may prohibit companies from collecting such client data.

 

Company Business

 

The company is primarily in the stock broking business. With the advent of modern platforms (mobile apps, internet trading), brokers can increase trading and the company can reach new customers using the same platform, thereby reducing the need for any capex while catering to a growing number of customers. Might be possible. In addition, factors such as flat fee-based models, increasing interest in the derivatives market, use of technology, low penetration of mutual funds and debentures in shares and household savings and customer acquisition through digital medium enable the company to grow its business. As of June 2020, the company had approximately 21.5 lakh operational broking accounts, of which only 38 per cent traded on the exchanges in 12 months.

 

Management

 

After the IPO, the promoter group will hold about 44.6 per cent stake in the company. The promoter cum MD of the company has been associated with it since the beginning. The CEO has been associated with the company since 2000, while the CFO joined in 2015. No major cases have come against the management. However, in 1999, one of the members of the promoter group was denied access to the capital market for a period of two years on charges of violating SEBI regulations. Since then, there have been no further allegations of this nature against any promoter or member of the promoter group.

 

Financial

 

The average ROE for the previous year was around 14.5, while the return on capital employed was around 13.9 per cent. Cash flow from operations was positive in March 2020, remaining negative for three of the last five years. Volatility in cash flow from operations arises due to changes in payments or receivables from various exchanges (NSE, BSE, MCX). The company succeeded in increasing its revenue by about 10.3 per cent during the last five years by March 2020. Angel Broking Company had an interest coverage ratio of approximately 8.9 as of March 2020, however, as of June 30, 2020, a debt-equity ratio of approximately 1.01. The company's short-term lending has been volatile over the past few years. It reached over Rs 490 crore in March 2020, from Rs 1,115 crore in March 2018 but has again reached Rs 646 crore by June 2020.