Angel Broking coming with an IPO to raise upto Rs 602 crore

Angel Broking

• Angel Broking is coming out with a 100% book building; initial public offering (IPO) of 1,96,72,130 shares of Rs 10 each in a price band Rs 305-306 per equity share.
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on September 22, 2020 and will close on September 24, 2020.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 30.50 times of its face value on the lower side and 30.60 times on the higher side.
• Book running lead manager to the issue are ICICI Securities, Edelweiss Financial Services and SBI Capital Markets.
• Compliance Officer for the issue is Naheed Patel.

Profile of the company

The company is one of the largest retail broking houses in India in terms of active clients on NSE as of June 30, 2020. It 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 its clients under the brand ‘Angel Broking’. The company’s broking and allied services are offered through company’s online and digital platforms, and its network of over 11,000 Authorised Persons, as of June 30, 2020. It has had more than 4.39 million downloads of its Angel Broking mobile application and nearly 1 million downloads of its Angel BEE mobile application as of June 30, 2020, which enable its clients to avail its services digitally. Digital marketing has enabled the company 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. It manages Rs 132,540 million in client assets and over 2.15 million operational broking accounts as of June 30, 2020.

The company’s experience of over two decades has helped it to integrate its knowledge and expertise in the broking industry with the technology it provides to its retail clients through various platforms. Over the years, the company has enhanced client engagement and experience through digitisation of its processes and augmentation of its technological platforms. It launched its mobile application for broking services in the year 2011 and KYC authentication and complete client on-boarding through the electronic and digital medium in the year 2015 and 2016, respectively. The company’s primary focus is to profitably grow its retail broking, margin funding and distribution businesses through its online and digital platforms, ‘Angel Broking Mobile App’, ‘trade.angelbroking.com’, ‘Angel SpeedPro’, ‘Angel BEE’, which are powered by ARQ, a rule-based investment engine. It provides its broking services through various web, digital and .exe platforms, which are integrated with each other enabling its clients to have a seamless trading and investment experience, positioning it to benefit from the development of the Indian financial market, increased emphasis on digitalisation, and growth in the returns from such financial investments.

Proceed is being used for:

• Meeting working capital requirements.
• General corporate purposes.

Industry overview

The domestic broking industry’s revenue registered 10.5% CAGR over fiscals 2015-2020, to reach an estimated Rs 225 billion on account of a 34% increase in turnover in equity (cash and derivatives of NSE, BSE) markets during the same period. The industry is expected to see strong growth going ahead, after facing difficulties on account of pressure on yields and changing regulatory landscape. The growth will mostly be due to increased scalability and reach of players to untapped markets, especially lower tiered cities, leveraging their highly agile digital models. This will be adequately supported by the growing turnover levels across the equity derivatives and cash segments. These segments are expected to cumulatively grow at a 23-25% CAGR up to fiscal 2025. This growth will be driven mainly by the higher investor awareness, increased retail interest across market segments, easier and faster means to access the markets and continuing FII inflows. As advanced technology enables easier online operations, brokerages can gain access to a large amount of client information and data. This will help them better target their customers with value added services as well as credit and distribution services in addition to their core offering which is now more simple and customer-friendly.

Until 1994, equity trading in India was based on the open outcry system, where professionals communicated their buy/sell orders on a stock exchange’s trading floor. It involved shouting and the use of hand signals. With the establishment of the NSE in 1994, the era of screen-based trading dawned in the country. Within a short span of time, screen-based trading replaced the open outcry system on all the stock exchanges in the country. The screen-based trading system adopted in India is referred to as the open electronic limit order book (ELOB) market system. In the present market scenario, participants look for enhanced efficiency, improvement in information dissemination and better use of technology to reduce cost. Mobile trading, which the regulator approved in 2000, has further changed the face of the domestic broking industry as it increases the convenience and facilitates trading on the go. The time for account opening and verification has dramatically reduced for the industry. With wider access to information and increased ease of doing transactions, trading volumes are likely to see significant growth. With the evolution of technology and artificial intelligence (AI), trades can now take place through a machine based on algorithm and that too within a few micro seconds. This AI-based buying and selling system has changed the law of supply and demand and it is now possible to easily estimate individualized demand and supply curves and thus individualized pricing. Further, AI has reduced information asymmetry in the market and made it more efficient.

Pros and strengths

One of the largest retail broking houses with strong brand equity: The company is one of the largest retail broking houses in India, in terms of active clients on NSE as of June 30, 2020. Its online and digital platforms, along with its vast network of Authorised Persons enables it to reach a large population of retail clients spread across approximately 96.87% or 18,649 pin codes in India. This widespread reach has enabled company to enhance its client base by 36.81% CAGR from 1.06 million in FY18 to 2.15 million as on June 30, 2020. Over this period, it witnessed a consistent growth in its 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 its overall turnover market share in the retail broking space in India. It has developed a dedicated client base due to its client-centric approach in respect of the services it provide, user-friendly digital interfaces; and the ability to provide seamless access to all segments of the stock markets.

Integrated, end to end, and advanced digital experience ensuring client satisfaction: The company remains focussed on innovation and implementation of technology across various services offered by it, which has resulted in an increase in client satisfaction. Its mobile based applications across the broking and advisory businesses have been consistently appreciated and awarded. Its backend systems provide an integrated and seamless access across all product platforms. Over the last three years, the company has transformed its business into a seamless digital experience for its 2.15 million clients as on June 30, 2020. Its marketing initiatives are now driven using artificial intelligence. The client on-boarding journey is largely a straight through process, without any requirement for physical documentation. Due to its continuous digital initiatives, it has increased its monthly average online order execution of direct clients to more than 99% in Q1 FY 21. It has also entered into an agreement with a third party for them to supply printable white labelled research reports and portfolio analysis for stock selection by its clients, which will be an additional offering for them. Further, its client on boarding is completely digital and a seamless process. Its client engagement and service activities are completely driven by its artificial intelligence and machine learning based strategies which provides a unique personalised experience to them.

Diversified product offering across segments at competitive price: The company’s online platforms, Angel Broking, trade.angelbroking.com, Angel SpeedPro and Angel BEE, powered by ARQ, allow it to provide its clients with an ability to manage their wealth and investments in an efficient and organized manner. Its clients trade in equities in the cash-delivery, cash-intraday, futures and options, indices – derivatives segment through various order types, including market orders, stop loss orders and valid till cancelled orders. It also facilitate participation in initial public offerings. Its Angel iTrade Prime Plan was launched comprising, Rs 0 for equity delivery and Rs 20 per order for all other segments. Coupled with this competitive pricing plan, it also offer services such as complementary in-house research and advisory, margin trading facility, securities as collateral and no charges for any fund transfer. This complete offering is a unique proposition and makes it one of the most competitive players across the industry.

Robust business metrics building operating leverage: The company’s well executed strategy of being a digital first organisation enabled it to grow its business exponentially. The augmentation of company’s digital processes, technological platforms, performance marketing, client engagement strategy, robust client acquisition and an all-inclusive flat pricing model has enabled it to substantially grow the average daily turnover from Rs 253,176 million in Q1 FY20 to Rs 618,945 million in Q1 FY21, as well as placed it at the forefront in the turnover based market share for the retail broking industry in India. The company’s broking, distribution and advisory services are backed by robust infrastructure and has processed at peak usage, being, approximately 3.46 million trades in a day.

Risks and concerns

Rely on Indian exchanges for significant portion of business: The company’s brokerage business relies on the Indian exchanges, such as NSE, BSE, MCX, MSEI and NCDEX, and the clearing corporations to execute and settle all its clients’ transactions. Its electronic brokerage platform and its systems for retail brokerage clients are connected to the exchanges and all orders placed by its clients are fulfilled through the exchanges. Any disruption in the functioning of the exchanges or a disruption to its connection with the exchanges could have a material adverse effect on its business and results of operations. To use the services of the exchanges, it is required to be registered as their members. This registration subjects it to various stock exchange regulations and periodic inspections by such exchanges. It cannot assure you that it will be able to strictly comply with such regulations or that such inspections would not find any violations by it. Failure to comply with such regulations could lead to fines, penalties, suspension of its registrations, and in extreme circumstances, termination of its registration. If its registration with the exchanges is terminated, it will be unable to provide brokerage services, which will have a material adverse effect on its business, financial condition and results of operations. In addition, its business operations are subject to regulatory limits on brokerage fee rates and net worth requirements imposed by exchanges.

Highly dependent on information technology: The company’s operations rely heavily on the effectiveness of its IT systems and their ability to record and process accurately a large number of transactions on a daily basis and in a timely manner to provide a seamless digital experience to its clients. While it is compliant with the SEBI Circular on Cyber Security & Cyber Resilience framework for Stock Brokers / Depository Participants, it has recognised and continue to address the need to have sophisticated technology systems in place to meet its clients’ requirements. A prolonged disruption of, or failure of, its information processing or communications systems would limit its ability to process transactions. Although the company back up its business data regularly and has a contingency disaster recovery centre for its retail brokerage and distribution businesses, it cannot assure you that there will not be an unforeseen circumstance or that its disaster recovery planning is adequate for all eventualities.

Rely on broking and related services business for substantial share of revenue, profitability: The company relies on its brokerage business for a substantial share of its revenue and profitability. The company’s brokerage business depends on number of orders executed and trading volume, which is significantly affected by external factors, such as general economic conditions, macroeconomic and monetary policies, market conditions and fluctuations in interest rates, all of which are beyond its control. Its operating revenue is also affected by the size of its client base, and the frequency at which they do business through it. It earn brokerage fee based on, among other things, the number of orders executed, the volume of trades its clients undertake through it. If the company fail to maintain and increase its client base, or fail to provide better services and products to retain and attract client activity, its brokerage income may be adversely affected.

High working capital requirements: The company’s business requires a high amount of working capital. To finance such capital requirements, it has availed certain loan facilities including overdraft facilities, working capital demand loans and bank guarantees. It cannot assure you that it will be able to raise debt to meet its working capital requirements on commercially acceptable terms in a timely manner or at all. If it has to fund its working capital requirements from infusion of equity, it may result in dilution of shareholding of its existing Shareholders. Further, the company proposes to utilize the Net Proceeds for its working capital requirements. Any delay in the Offer may have an adverse effect on its business, results of operation, cash flows and financial condition. 

Outlook

Incorporated in 1996, Angel Broking is one of India's oldest stock broking houses providing broking, marging funding, advisory, and financial services through brands Angel Broking and Angel Bee powered by ARQ. It provides its broking services through various web, digital and .exe platforms, which are integrated with each other enabling its clients to have a seamless trading and investment experience, positioning it to benefit from the development of the Indian financial market, increased emphasis on digitalisation, and growth in the returns from such financial investments. It remains focussed on innovation and implementation of technology across various services offered by it, which has resulted in an increase in client satisfaction. Besides, it has a strong management team with experience in the Indian financial services and broking sectors. On the concern side, if the company is unable to maintain and enhance the ‘Angel’ brand equity, the sales of its products and services may suffer which would have a material adverse effect on its financial condition and results of operations. The Indian securities industry is fragmented and typified by low barriers to entry. Accordingly, the company faces significant competition from companies seeking to attract its clients’ financial assets. It compete on the basis of a number of factors, including execution, depth of product and service offerings, innovation, reputation, price and convenience.

The issue has been offered in a price band of Rs 305-306 per equity share. The aggregate size of the offer is around Rs 599.99 crore to Rs 601.96 crore based on lower and upper price band respectively. On the performance front, the company’s total income decreased by 3.75% from Rs 7,841.13 million in Financial Year 2019 to Rs 7,547.14 million in Financial Year 2020. Its profit for the year increased by 3.15% from Rs 798.35 million in Financial Year 2019 to Rs 823.46 million in Financial Year 2020. The company intends to strengthen its leadership position to become the largest retail broking firm in India, both by broking revenue and active clients. In particular, it aims to enhance its market position in the growing retail broking segment, by continuing to focus on acquiring and retaining clients, product innovation, leveraging its web and digital broking platforms and brand to acquire clients through these platforms and its extensive Authorised Person network, analyzing client behaviour and provide personalized recommendations. Further, it intends to expand and offer all the financial services required by its retail clients.