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Buy This Small Cap Finance Stock With A Target Price of Rs.1750: HDFC Securities

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HDFC Securities has issued a buy call on the shares of Angel One Ltd. The brokerage has set a target price of Rs.1750 and expects the stock to reach that level in six months, from the current market price of Rs. 1,409 as of 28 January, 3:30 p.m. IST.

 

Q3FY22 result of Angel One according to HDFC Securities
 

Q3FY22 result of Angel One according to HDFC Securities

The company has reported a stellar all-around performance in Q3FY22. The revenue doubled YoY at Rs.4450 mn and it rose by 15% QoQ. Net broking revenue at Rs.2.75bn was up +19% QoQ due to higher average orders per customer at 22.6 and in this segment, the derivative revenue was very much impressive. Net Interest Income was at Rs.803 mn, up 12% QoQ. Q3FY22 EBITDA margin stood at 50.8% - a six-quarter high; on the back of this, the net profit was up 23%/ 125% QoQ/YoY. Customer acquisition run-rate continues to remain elevated at 0.46mn/month and the company had witnessed strong gross addition in client base by 1.34 mn clients in Q3FY22 as compared to 1.28 mn clients in Q2FY22. Further, the management has informed that 80% of the clients acquired in Q3FY22 are new to the market. The number of orders also increased to 180mn in Q3FY22 compared to 152m in Q2FY22. As of Dec-21, the company has a 9.7% market share in India's Demat accounts.

Total Overall Equity's Average Daily Turnover (ADTO) was up 20% QoQ at Rs.6,946 bn and Overall Equity Market Share in terms of Retail ADTO deteriorated slightly at 20.9% compared to 21.2% in last quarter. Commodity market share (Retail) for the quarter has risen impressively; up 870 bps QoQ at 36.4%. The Board of Directors has recommended a third interim dividend of Rs. 7.0/- per equity share of Rs. 10/- each, equivalent to 35% of consolidated profit after tax for the quarter. Angel One in Q4FY21 had stated that it is confident of generating cash flows and since it is an asset-light business model, the company plans to give 35% of the profit each year as dividend spread over 4 quarters as a reward to shareholders.

Key investment rationale according to the brokerage

Key investment rationale according to the brokerage

  • Digital capabilities are the key strength of the company. It has been constantly investing in building digital platforms (spent Rs.1 bn on tech spends during 9MFY22) and in past one year it has hired many tops to mid-level employees with new-age consumer-tech backgrounds. Angel One is currently working on launching (expected to be fully functional within the next 8-10 months) a next-gen app to enable personalised financial journey powered by the new tech platform.
  • Management believes that the launch of its refined super-app will further help in understanding customer behaviour and hence, improve their activity levels. Post the adoption of the new flat fee structure the company has witnessed strong traction in customer acquisition.
  • Another noteworthy trend here is the rise of discount brokers like Angel One. Since the past many quarters, it has been observed that approximately 75% of incremental active clients were added by the top five digital players of this industry.
Buy With A Target Price of Rs.1750

Buy With A Target Price of Rs.1750

HDFC Securities has said in a report that "We have envisaged 34% CAGR for revenue with pure broking revenue dominating the mix and 38% CAGR for Adjusted Net Profit over FY21-24E. EBITDA margins are estimated to improve to 50.9% by FY24E compared to 49.4% in FY21 as operating leverage derives further gains. The business could deliver RoEs in the north of 35% over FY22-24E. The company is trading at a decent valuation of 16.8x / 14.5x FY23E / FY24E adjusted earnings. Going forward, the company should have a healthy dividend payout ratio. We feel investors can buy Angel One between Rs.1410-1420 (15x Dec-23E EPS) & add more on dips of Rs.1230 (13x Dec-23E EPS) for the base case fair value of Rs.1655 (17.5x Dec-23E EPS) and for the bull case fair value of Rs.1750 (18.5x Dec-23E EPS) over the next two quarters."

Disclaimer

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. 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.

 

Story first published: Saturday, January 29, 2022, 11:41 [IST]
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