Buy This Financial Stock For +42% Upside Suggested By Motilal Oswal

The brokerage firm, Motilal Oswal has suggested buying Angel One with a target price of Rs 1,750 and for a potential upside of +42% from the current market level. The stock is today trading at Rs 1,247.35 at the NSE and the brokerage has suggested buying the stock at a market price of Rs 1,232. Angel Broking Limited, also recognized as Angel One, is an Indian stockbroker that was founded in 1996. With 6.5 million overall clients and 2.5 million active clients on the NSE, Angel One has risen to become India's third-largest broker. On the NSE, it has a market share of 9.3 percent among active clients, up from 4.8 percent in 1QFY20.

Company’s performance

According to the brokerage core to Angel's growth strategy has been its customer acquisition initiatives wherein it has targeted the Millennial and GenZ population in tier 2 and tier 3 towns. As a result, the share of tier 2 and tier 3 towns in its gross customer additions has surged from 85% in 1QFY20 to 94% in 2QFY22. Also, the median age of these customers has declined from 34 years in 1QFY20 to 29 years in 2QFY22.

The brokerage has said Angel's market share in F&O has jumped up from 3.3% in 1QFY20 to 21.1% in 2QFY22. While the cash segment witnessed some pressure post the margin norms implementation (market share fell from 18.2% in 3QFY21 to 13.6% in 2QFY22), the F&O segment contributes to 98% of the total retail industry ADTO has witnessed a sustained increase.

The brokerage has reported that "Angel's market share in the F&O ADTO segment has increased sharply from 3.3% in 1QFY20 to 23.8% in 1QFY22. During 2QFY22, its market share fell to 21.1%, and the company is confident of recovering a large portion of the market share loss in due course. In the cash segment, the company's market share increased from 13.7% in 1QFY20 to 18.4% in 2QFY21 before declining to 13.6% in 2QFY22."

What should investors do?

Motilal Oswal has reported in its research report that "During 1HFY22, Angel reported revenues of INR10b as compared to INR7.2b in FY20. We estimate the company to record a revenue CAGR of 34% for FY21-24E. The EBITDA margin is expected to remain steady at around 50% as the company has guided for sustained investments in technology and marketing with a focus on acquiring more customers and improving its activation rates."

The brokerage has further claimed that "Over the next three years, we expect Angel's revenues to grow at 34% CAGR and C/I ratio to remain steady at 51%. As a result, the company should deliver 38% PAT CAGR to INR7.8b in FY24E. Angel's business is largely capital-light, and its entire revenues are cash-flow based (no accrual income). We initiate coverage with a Buy rating and a TP of INR1750 (20x Sep'23E EPS)."

The brokerage says the stock trades at FY24E P/E of 13.1x, which we find attractive in view of the company's strong earnings growth profile. Angel's RoE is expected to remain healthy in the range of 34-42% over the next three years.

Disclaimer

The above stock has been picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.