Angel One IPO review (May apply)

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Review By Dilip Davda on September 19, 2020

•    ABL is one of the top six largest retail broking houses in India
•    Based on Q1 FY21 data, it has emerged at No. 2 player in retail broking.
•    ABL is giving a major thrust to the digitization of its operations and reaping benefits.
•    Issue appears reasonably priced considering Q1 FY21 performance.
•    Investors may consider investment for the long term.


PREFACE:
ABL filed its DRHP in the month of September 2018 and finally comes with its IPO in September 2020. For this inordinate delay, management clarified that while the volatile market was at center stage, it geared up during this time leg in digitizing its entire operations and mobile app. Its investment in this area has started bearing fruits as can be seen in its working for Q1, FY21. ABL's goal is to outperform the industry and to become the largest retail broking firm in India, both by broking revenue and active clients. Based on Q1 FY21 incremental clients data, ABL has ranked as 2nd player in top six.

ABOUT COMPANY:
Angel One Ltd. (ABL) is one of the largest retail broking houses in India in terms of active clients on NSE as of June 30, 2020 (Source: CRISIL Report). ABL is a technology-led financial services company providing broking and advisory services, margin funding, loans against shares (through one of its Subsidiaries, AFPL) and financial products distribution to clients under the brand 'Angel One'. Company's broking and allied services are offered through (i) its online and digital platforms, and (ii) network of over 11,000 Authorised Persons (the 'Authorised Persons'), as of June 30, 2020.

ABL  had more than 4.39 million downloads of its Angel One mobile application and nearly 1 million downloads of Angel BEE mobile application as of June 30, 2020, which enable clients to avail services digitally. Digital marketing has enabled ABL to garner 398 million digital impressions in June 2020 on its various online and digital platforms. Its customer outreach spans across approximately 96.87% or 18,649 pin codes in India as of June 30, 2020. The company manages Rs. 132,540 million in client assets and over 2.15 million operational broking accounts as of June 30, 2020.

Company's primary focus is to profitably grow retail broking, margin funding and distribution businesses through online and digital platforms, 'Angel One Mobile App', 'trade.angelbroking.com', 'Angel SpeedPro', 'Angel BEE', which are powered by 'ARQ', a rule-based investment engine. It provides broking services through the various web, digital and .exe platforms, which are integrated with each other
enabling clients to have seamless trading and investment experience, help to position ABL to benefit from the development of the Indian financial market, increased emphasis on digitalization and growth in returns from such financial investments made.

Company's online and digital platforms, along with its vast network of Authorised Persons enable the company to reach a large population of retail clients spread across India. This widespread reach has enabled it to enhance client base by 36.81% CAGR from 1.06 million in FY18 to 2.15 million as on June 30, 2020. Over this period, ABL witnessed consistent growth in gross client addition of 0.22 million, 0.26 million, 0.56 million and 0.35 million in FY18, FY19, FY20 and Q1 FY21, respectively and representing a 59.54% CAGR over the period from FY18 to FY20. In the three months period ending June 30, 2020, it witnessed an average monthly client addition of approximately 115,565 clients, over a monthly average of 46,676 clients in FY20 representing a growth of 147.59%. Over the last one year, it has more than doubled overall turnover market share in the retail broking space in India.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its working capital (Rs. 230.00 cr.) and general corpus fund needs, ABL is coming out with a maiden IPO with a combo offer of fresh equity issue (Rs. 300 cr.) and offer for sale (Rs. 300 cr.). It consists fresh equity issue of approx 9803922 shares of Rs. 10 each (at the upper price band) and offer for sale of 9803922 shares. Thus the overall issue will be for approx. 19607844 equity shares. The issue opens for subscription on September 22, 2020, and will close on September 24, 2020. The company has fixed the price band of Rs. 305 - Rs. 306 per share. Minimum application is to be made for 49 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. ABL mulls mobilizing around Rs. 600.00 cr. (based on upper price band) through this IPO. Issue constitutes 23.97% of the post issue paid-up capital of the company.

Having issued/converted entire equity at par, the company raised further equity in the price range of Rs. 21.60 to Rs. 903.81 between November 2007 and March 2018. It has also issued bonus shares in the ratio of 4 for 1 in March 2018.

The average cost of acquisition of shares by the promoters/ selling stakeholders is Rs. 0.06, Rs. 0.10, Rs. 0.49, Rs. 0.67, Rs. 0.99, Rs. 2.08, Rs. 2.40, Rs. 6.48, Rs. 12.69, Rs. 13, Rs. and Rs. 115.58 per share. Post issue, ABL's current paid-up equity capital of Rs. 72.00 cr. will stand enhanced to Rs. 81.80 cr. With this issue, the company is looking for a market cap of Rs. 2503.05 cr.

The issue is jointly lead managed by ICICI Securities Ltd., Edelweiss Financial Services Ltd., and SBI Capital Markets Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue.

FINANCIAL PERFORMANCE:
On the financial performance front, on a consolidated basis ABL has posted revenue/net profits of Rs. 779.99 cr. / Rs. 109.79 cr. (FY18), Rs. 784.11 cr. / Rs. 83.40 cr. (FY19) and Rs. 754.71 cr. / Rs. 86.79 cr. (FY20). For Q1 of FY21, it has posted a net profit of Rs. 48.26 cr. on revenue of Rs. 246.60 cr. For FY18-FY20 period, it posted a decline in the bottom line due to its investment in digitization of operations and improving its services offerings. It has started bearing fruits of investments, as can be seen in Q1 FY21 performance.

For the last three fiscals, on a consolidated basis, ABL has posted an average EPS of Rs. 11.90 and an average RoNW of 15.74%. The issue is priced at a P/BV of 3.45 based on its NAV of Rs. 88.77 as on June 30,, 2020 (based on upper price band). For the last three fiscals, ABL has distributed on an average Rs. 23.4 cr.  as yearly dividend payouts.

If we attribute latest earnings on fully diluted equity post issue, then asking price is at a P/E of around 13 against peer group P/E of 31.30. Thus prima facie issue is reasonably priced based on latest earning parameters.

BRLM's TRACK RECORD:
The three Book Running Lead Managers associated with this issue have handled 18 public issues in the past three years, out of which 8 issues closed below the issue price on listing date.  

COMPARISION WITH LISTED PEERS:
As per offer documents, ABL has shown ICICI Securities Ltd., Geojit Financial Services Ltd., IIFL Securities Ltd., Motilal Financial Services Ltd. and JM Financial Ltd. as its listed peers. They are currently trading at a P/Es of around 24.97, 15.45, 8.03, 33.05 and 52.87, (as on September 18, 2020 closing).  However, they are strictly not comparable on an apple to apple basis.

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