Angel Broking IPO opens today: Here's what top brokerages recommend

The initial public offer (IPO) of Angel Broking, one of the largest retail broking houses in India, opened for public subscription today. The company plans to raise Rs 600 crore via the IPO which consists of a fresh issue of Rs 300 crore and offer for sale (OFS) of Rs 300 crore by promoters and investors.

The public issue will close on September 24. Bids can be made for a minimum of 49 equity shares and in multiples of 49 shares thereafter. ICICI Securities, Edelweiss Financial Services and SBI Capital Markets are the book-running lead managers for the IPO.

On Monday, Angel Broking raised nearly Rs 180 crore from anchor investors. It allocated more than 58.8 lakh shares to the anchor investors at a price of Rs 306 apiece, according to a regulatory filing.

The company proposes to utilise the net proceeds to meet working capital requirements and general corporate purposes.

Here's what leading brokerages have to suggest regarding the offer -

Anand Rathi -- Subscribe

The company’s IPO is priced at around 26.84x FY20 earnings at the upper price band. We believe Angel Broking Ltd. IPO and OFS is fairly priced at current price band, considering its financial performance and growth prospects. We recommend 'Subscribe' for the IPO.  Although, the company has not been able to report a growth in its revenues and profits in the last three years which stood at Rs 754.7 crore and Rs 81.4 crore, respectively, in FY20. For the three months period ended Jun-20 the company’s revenues stood at Rs 246.6 crore and profit after tax (PAT) at Rs 46.9 crore.

Motilal Oswal -- Subscribe

At the higher end of the price band, the issue is valued at 29x FY20 P/E (fully diluted), which seems fairly priced. We like Angel given its leading position in retail broking, robust technology platform, and innovative offerings. Considering the sharp rise in retail participation and ongoing industry challenges, top players are likely to gain market share. Hence, investors can Subscribe to the IPO. Meanwhile, revenue concentration, client concentration, highly competitive industry, and legal/other proceedings against promoters remain key risks for the company.

Choice Broking -- Subscribe

We believe ABL to keep posting strong customers acquisition numbers going forward, however its strategy to keep brokerage low to compete with discount brokerages could keep profitability under pressure. At the CMP of Rs 306, demanded valuation at Rs 2,503 crore is valued at P/E of 28.9x (post issue adjusted FY20 EPS of Rs10.6). Other brokerage companies’ valuation include ICICI Sec (P/E: 28.3x) and Aditya Birla Money (P/E: 22.4x). ABL’s strategy to focus on leveraging digital platforms for client acquisition has started yielding benefits.

Alternatively, the company is also competing with discount brokers through reducing brokerage charges and additionally providing other value-added services like research advisory. 5paisa Capital, a discount broker launched by IIFL in 2015, is trading at valuation of P/BV of 6.7x as compared to ABL’s P/BV of 2.7x. Thus, considering all parameters, we assign ‘Subscribe’ rating to the issue.

Antique Stock Broking - Avoid

Angel Broking, recently transformed from full service retail broker to discount broker, presents a unique dilemma - on the one hand, India's financialization story has never been stronger and more durable, while on the other hand, the IPO pricing demands peak valuations at the time of whole new retail investors wave in the equity markets. This forces us to focus more on the risks rather than opportunities and more on the valuation rather than its ability to capture customers at a rapid pace. Hence, despite being very constructive on India's financialisation theme, we believe that investors should wait for better price points.

Nirmal Bang -- Neutral

Increase in market share by two times in the last five years, strong track record of introducing new technological products, proactive management and brand equity developed over the last 2 decades positions Angel well for transitioning into one of the top discount brokers in India with decent profitability in the longer term.  Upon combining the financials of IIFL Securities and 5 Paisa, we observe that this entity shares identical characteristics to Angel with respect to number/market share of active clients, revenue and return on equity. 

However Angel’s valuations compared to the hypothetical entity of IIFL+5 Paisa is higher based on FY20 earnings. Also we believe Q1FY21 has benefits of bunching up of work from home due to Covid situation and broad-based buoyancy in markets. The sustenance of these dual benefits into the future is uncertain and hence we believe it would be premature to annualize Q1FY21 earnings. We thus rate the issue as “NEUTRAL”.

ICICI Securities -- Not rated

Angel Broking has enhanced its client base by 36.8 per cent CAGR from around 10.6 lakh in FY18 to around 21.5 lakh as on June 30, 2020. Furthermore, augmentation of its digital processes, and an all-inclusive flat pricing model has enabled Angel Broking to substantially grow ADTO from Rs 25,317.6 crore in Q1FY20 to Rs 61,894.5 crore in Q1FY21 (up 144.5 per cent YoY).

On the other hand, general economic conditions could impact the company's profitability while statutory and regulatory requirements could impact business. The company also relies extensively on brokerage business due to which concentration risks persist. At the higher end of the price band of Rs 306, the stock is available at P/E of around 29x FY20 EPS (post issue), while the stock is available at around 16x P/E at Q1FY21 (annualised basis) earnings per share (EPS).