“HIGH GROWTH FINTECH IN DIGITAL

BOOM”
Angel Broking Ltd Mcap-3030Cr - CMP-370

Background of the Company

The Angel group is a well-established brand with over three decades of presence in the broking
industry. Recently, its market share within active client space (National Stock Exchange; NSE)
increased significantly to 6.7% as on July 31, 2020, compared with 5.3% and 4.7% as on March 31,
2020 and March 31, 2019, respectively. This improvement was driven by significant increase in client
additions in the first four months of the current fiscal. Angel Broking added a total of 2.79 lakh
clients in terms of NSE active clients as of July 2020 of the current fiscal, accounting for a 13.7%
market share in total client additions in the industry during this period. This increase in market share
and client additions can also be attributed to change in the pricing model adopted by the Angel
group from April 2019 onwards.

The management has been focused on transforming its operations to a fully digital platform and has
launched easy-to-use trading applications for its customers in the recent past. This, coupled with
successful shift to a flat-fee-based model from the commission-fee-based model in April 2019,
helped Angel Broking position itself among the top discount brokers and garner major clients,
resulting in significant increase in income. Overall broking income for the company was flat at Rs 504
crore in fiscal 2020 despite a 39.6% increase in active clients. This was largely because of change in
the pricing plan, leading to nearly 65% drop in pricing structure. However, subsequent increase in
clientele by the end of March 2020 partially offsets the impact of overall brokerage revenue for
2020. With the continued momentum in client additions and the increasing number of transactions,
the group's broking income stood at Rs 178.1 crore in the first quarter of fiscal 2021, which is 41.3%
higher than broking income in fiscal 2020 on an annualised basis.

Angel Broking has been operating for three decades and is led by Mr Dinesh Thakkar (MD and
Chairman). The executive management is headed by Mr Vinay Agrawal (CEO), who has been with the
Angel group for over 22 years. The management has been instrumental in transforming the Angel
group from a traditional to a hybrid broking company. As the broking industry faced high pricing
pressure from upstart discount brokers, Angel Broking successfully pivoted its business model. It has
proactively embraced the shift in industry trend by offering trading through mobile applications and
use of e-KYC and a flat-fee based pricing model.

OVERVIEW OF INDUSTRY
Indian brokerage industry has been undergoing structural shift from percentage led business model
to flat brokerage & subscription-based model. Market share of top two discount brokers in terms of
number of clients, namely Zerodha and Upstox, has increased from 17% to 30% in past one year,
which reflects clients’ attraction towards flat brokerage plans.
Overall market ADTO( Average daily turnover) has increased over ~2x from 14.4 lakh crore in Q3FY20
to 31.1 lakh crore in Q3FY21 and has shown increasing trends sequentially Discount brokers
continued to gain majority of incremental clientele as well as ADTO. Consequently, traditional
brokers have started offering competitive fixed brokerage plans thereby blurring earlier lines of
difference between peers. Bank led brokers including Kotak Securities, Axis Securities etc have
started offering low brokerage plans while traditional non-bank led brokers like Angel Broking and
Sharekhan have also joined the bandwagon.

Discount brokers continued to gain majority of incremental clientele as well as ADTO. Consequently,
traditional brokers have started offering competitive fixed brokerage plans thereby blurring earlier
lines of difference between peers. Bank led brokers including Kotak Securities, Axis Securities etc
have started offering low brokerage plans while traditional non-bank led brokers like Angel Broking
and Sharekhan have also joined the bandwagon.

In the wake of changes experienced in the domestic stock market and broking industry, evolution in
terms of business model was imminent. In our view, Indian broking industry though has a
transaction fee model but its structurally moving for a clear distinction between charges for
transaction and fee-based model for services like wealth management and investment advisory.
While a shift towards a fee-based model was already in the works with brokers focusing on building
advisory model (wealth AUM), pandemic has added boost to pace of change. Apart from advisory
services, focus on fund-based activities, including margin funding and loan against shares, is on the
rise, enabling brokers to build sustainable earnings.

Market Share of Top players

Broker Active Clients (Lakhs) Market Share %
Zerodha 31.4 19.2
Upstox 18.5 11.3
Angel Broking 13.2 8.1
HDFC Sec 9.2 5.6
5paisa Capital 8.2 5.0
Kotak Sec 7.0 4.2
Sharekhan 6.6 4.0
Motilal 5.1 3.1
Others 64.6 39.4

ABL is 3rd in terms of active client’s market share

Overview of Business
Angel Broking is one of the largest digital retail broking houses in India. They have a customer base
of 3.19 million with a reach of more than 97.6% pin codes across India, of this 1.88 million were
added after April 2019. ABL continues to remain fourth largest in terms of NSE active clients and
third largest in incremental NSE active clients in Q3 FY2021. 10 out of every 66 incremental demat
accounts are opened with ABL.
ABL offers their service through five digital platforms. One, Angel Broking mobile app, it is our
flagship product for safe seamless online trading platform and enables client to trade in equity,
future and options, currencies, commodities across stock exchanges, make investment in initial
public offering and make investment in mutual fund. Second Angel BEE one of their new products,
which is in the final stages of commercialization. It is a digital platform through which they will
provide retail wealth management and personalize investment recommendation to our clients. Third
ARQ, through which they pioneered the concept of robo advisory in India. ARQ, provides equity
advisory services based on alpha generating algorithms that consider multiple fundamental and
quantitative factors. ARQ has consistently outperformed the benchmark indices since inception.
Fourth NXT platform, it is a platform which helps their 14,000 authorized persons to be an integral
part of the digital ecosystem and effectively utilize the business opp6.ortunities that are generated
through various marketing initiatives. Fifth SpeedPro, it is desktop trading software which provides
clients with a single window trading experience along with the trade monitoring capabilities across
BSE, NSE and MCX, it is a secured robust platform with one click installation and is designed to meet
trader’s requirement.

Outlook
Amongst the traditional brokers turned discount broker, Angel Broking has seen increasing trend of
market share since past 3 to 4 quarters as it shifted its focus from traditional business to discount
broking model.

Angel broking sees rise in market share in terms of active clients

Share of Active Clients

9

Angel Broking has seen increase in market share in active clients from 4.9% to 8.1%

Financials
 Sales have doubled from 451crs in 2016 to 1000cr in 2021
 Credit Rating ‘CRISIL A1+’
 Dividend Yield of more than 3%
  ROCE is more than 13%
 Debt has reduced over the years and company has cash of 900crores on books.

Summary
 The Middle class is joining the money class. The Money class is finding enough
opportunities in India and is increasingly not hiding it away in the Swiss accounts. The
money class is also increasingly moving towards white money from the erstwhile black

money. India is moving away from a nation of savers to a nation of investors

 The future of money is moving into advisory and assurance. Dumb FD money is moving
into balanced equity funds. Smarter money is moving from Mutual funds into AIF, PMS,
Venture Funds and PE funds.
 Brokerage revenues are cyclical. Wealth Management is not cyclical. Not all rivers are
perennial, but all oceans perennially have water in them. ABL is focussing on Wealth
Management with its new product Angel BEE
 Real estate in most cities is at peak valuation. People are preferring to invest into
financial assets rather than a second home.
 ABL has more than 80% of its clients from tier 2 & tier 3 cities and is well placed to capture
the shift of middle class from physical assets to other financial assets
 Target CTR of 50% (Cost-to- Revenue) which will improve the margin profile of the company
 ABL has customer base almost 38% of which are active and if you compare with industry
average it is around 32% so ABL’s customers are more active.
 ABL is also certified as a “Great place to work” which signifies its commitment to employees
as stakeholders.

Rational
Demand: Digital onboarding of new client is growing at 20 to 25%+ for past 3 years and same is
expected to grow same rate for next 3 years primary due digital access, online KYC and discount
brokerage model. Angel to be forefront in beating double digit growth and bottom line grow more
due to asset light business (digital acquisition is negligible compare to offline model). With major
broking revenue about 60% coming via new age digital customer, this area is bound to grow in
double digit.
New Product: Angel Bee is focussed on financial planning for clients to decide on their financial
planning so initially ABL will start cross selling to their broking client products like mutual fund,
insurance, loan products and all that. Angel BEE is more on financial planning for lifetime, so
gradually they want people to create lots of financial assets to meet their financial goals and
requirement will get operational next FY and add to the revenue of the company.

Angel to majoring focus on UX (User Experience ) experience by revamping existing user interface
and experience in coming months, this will put Angel in same league with Zerodha.

New CEO: ABL has recently appointed Mr Narayan Gangadhar as CEO, Mr Gangadhar has 2 decades
of global experience leading technology businesses at top tier Silicon Valley companies, such as
Google, Microsoft, Amazon and Uber. He brings a lot of operating experience leading highly
disruptive businesses by driving innovation in product, technology, capability building and processes
automation. Narayan was Head of Technology at Uber in San Francisco where he led the company’s
core infrastructure, machine learning, data platform and data science teams of over 650+ employees
across the globe. During his tenure, Uber scaled to over 400+ cities globally completing over 14mn+
trips daily. At Google, Narayan was based out of Silicon Valley Offices where he led large product
and engineering teams to launch the first set of Googles Cloud Infrastructure.

Unique Business Model: The company has rapidly changed its business model from Full service to
Discount broker and is now shifting to become a technology focused Broker. It is one of the first
broker to have artificial Intelligence ARQ and is moving towards Platform business i.e All products to
be offered online at one place.

All discount player like Zerodha, Upstox do not have proper customer support, Angel stands out in
providing quick turnaround in customer support. Angel stands out in differentiating in Customer
support compare to discount brokerage.

Undervaluation: ABL is trading at less than 3 times market cap to sales as compared to its peers
ICICI securities at 7 times market cap to sales & 5 paisa which trades at 5 times market cap to sales.

Risks
A significant risk is however if the overall equity markets correct significantly since a lot of new
investors have joined, they may tend to exit the market if they incur a loss which may affect the
business of the company
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