Angel One Stock Research Report

Risk-reward favourable; earnings growth levers intact…..

Angel One’s (Angel) Q3FY25 result was impacted by a combination of 1) regulatory impacts of True to Label, (2) regulatory impact of lower orders and (3) overall weak market conditions denting volumes. The impact from regulatory changes was expected, basis trends seen in Dec’24; and the complete impact of the same will likely span out over Q4FY25. However, we believe that the current business volumes and levers such as customer growth, volume recovery and price hikes exist for Angel to register >INR 15bn profits in FY27E. Business diversification beyond broking to credit/insurance distribution and wealth/asset management are long-term levers to improve customer retention and life cycle value. Key Risks include further changes in regulations and lower than expected capital market activity

Maintain BUY with a revised TP of INR 3,000 (INR 3,700 earlier) driven by the impact of regulations

We cut FY26E EPS estimate by ~22% to INR 144 and roll over valuation to FY27E EPS of INR 167. We now value Angel at 18x (20x earlier) FY27E EPS of INR 167 to arrive at target price of INR 3,000.

Q3FY25 results weaker than expected

Lower number of orders

Total number of orders fell 13.8% QoQ to 422mn in Q3FY25 vs. 489mn in Q2FY25. The dip was on expected lines with the new equity derivatives framework taking effect from Nov’24. F&O orders slipped 11.5% QoQ to 309mn while cash orders declined 23.9% QoQ to 89mn in Q3FY25. Out of 89mn cash orders, 33mn were intra-day cash orders while 57mn were delivery cash orders. Average daily orders decreased to 6.9mn in Q3FY25 vs. 8mn in Q2FY25. Gross broking revenue decreased 12.5% QoQ to INR 8.2bn.

Higher-than-expected impact of True to Label 

True to label has led to loss of INR 1.14bn in income for Angel in Q3FY25. To counter this, Angel started levying brokerage charges on cash delivery orders (flat INR 20, or 0.1% + GST, whichever is lower per executed order with a minimum brokerage of INR 2). Angel also started to charge interest of 0.0342% per/day (12.5% p.a.) on collateral margin shortfall in excess of INR 50k (earlier INR 1mn). These charges are effective Nov’24. The company earned an additional INR 238mn from the newly levied charges in Q3FY25. The difference between loss of revenue (INR 1.14bn) and additional new revenue (INR238mn) was more than expected due to lagged implementation and overall lower cash volumes.

Financial Summary

Angel One Stock Research Report

Flattish MTF book but increase in borrowings

Angel reported a flat MTF book of INR 40.7bn in Dec’24 vs. INR 40.8bn in Sep’24. Average MTF book for Q3FY25 increased 4.2% QoQ to INR 40.5bn vs. INR 38.9bn in Q2FY25. Total borrowings, which remained flat post QIP in Apr’24, increased 21% QoQ in Q3FY25 to INR 37.7bn vs. INR 31.1bn.

Borrowings, as a % of MTF book, increased to 93% in Q3FY25 vs. 80% in Q2FY25 and 85% in Q1FY25. Total interest income for Angel decreased 3% QoQ to INR 3.5bn while borrowing cost increased 11% QoQ to INR 0.83bn in Q3FY25. The decline in interest income can be attributed to: 1) MTF rate revision to 14.99% in Nov’24, which reduced their interest income on MTF by ~INR 102mn; 2) lower quantum of fixed deposits due to overall lower cash volumes; and 3) a marginally lower yield leading to 7.8% sequential decline in other interest income.

Q3FY25 operating expenses declined but not enough to offset decline in revenue

EBITDA margin declined 788bps QoQ. Total operating expenses (ex of Fees and Commission Income and Interest Income) declined 5% QoQ to INR 5.7bn in Q3FY25. Total employee expenses increased 3% QoQ to INR 2.4bn while other expenses declined 10% QoQ to INR 3.3bn. Decline in other expenses was driven by lower gross customer acquisition in Q3FY25 at 2.09mn vs. 2.99mn in Q2FY25 (down 30.3% QoQ).

A smaller decline in total operating expenses compared to gross client acquisition was primarily because of higher customer acquisition cost due to seasonal higher competition from e-commerce platforms. A 5% QoQ decline in total operating expenses was small compared to the 18% QoQ decline in total net income, leading to a 31% QoQ decline in EBITDA and 788bps decline in EBITDA margin. Angel reported EBITDA of INR 4.1bn in Q3FY25 and margin of 42% vs. EBITDA of INR 5.9bn in Q2FY25 with margin of 49.9%. The company reported PAT of INR 2.8bn in Q3FY25 vs. INR 4.2bn in Q2FY25 (down 34%).