Is Angel One a bargain or a value trap?

Angel One is now at attractive levels. Is it a bargain or a value trap?

Regulatory hurdles have shaken Angel One's core business. Can its diversification bets change course?

Is Angel One a bargain or a value trap?

A year is a long time in business. Ask brokerage player Angel One , once riding the highs of rapid investor influx, has taken a major blow in the last year. The stock has tumbled 26 per cent, with its P/E ratio now sitting below its five-year median of 19 times. The culprit is the increased regulatory scrutiny by SEBI.

We lay out a rundown of what went down and assess whether the company's corrective measures, coupled with its low valuation, presents an opportunity for investors.

Angel One reels under regulatory pressure

Angel One's primary revenue driver has always been its broking and related services. A closer look at its business mix over the past five years and the latest Q3 quarter reveals that regulatory changes have taken a significant toll on core operations.

'True to label' framework: One of the biggest blows came from SEBI's "True-to-Label" framework in July 2024, which standardised exchange charges and eliminated additional fees that brokers previously charged under various heads. For Angel One, this wiped out 8 per cent of its revenue overnight.
The F&O hit: Next was SEBI's intensified crackdown on the retail frenzy in the derivatives (F&O) segment, which contributes over 80 per cent of Angel One's broking revenue. New restrictions, including tighter margin requirements and pledge mechanisms, have slowed down trading activity.
F&O average daily turnover on NSE, which grew over 100 per cent in 2023, increased by a paltry 3 per cent in 2024. This has directly impacted the company's order volumes. In Q3 FY25, its average daily turnover dropped by 13 per cent, its first major decline in over four years.
Impact on financials: The impact is visible in its latest earnings. The company's profit after tax grew by just 8 per cent YoY in Q3 FY25 compared to its 25 per cent growth rate in the preceding three quarters. A year ago, it grew by a healthy 16 per cent. Sequentially, the decline in Q3 was sharper at 34 per cent.

Angel One segment-wise revenue mix

80% of broking revenue comes from the F&O segment

Business segments	FY21 (%)	FY22 (%)	FY23 (%)	FY24	Q3 FY'25
1. Gross Broking	70	68	69	68	65
- F&O	51	71	83	84	81
- Cash	40	24	12	11	12
- Commodity	8	4	4	5	7
- Currency	1	1	1	0	0
2. Interest	15	16	17	18	28
3. Depository	7	7	3	4	4
4. Ancilliary Transaction	4	6	9	8	0
5. Distribution	3	2	1	1	2
6. Other income	1	1	1	1	1
Note: Segment revenue shown as % of total revenue

Attempting course correction

Recognising the risks of over-reliance on broking revenue, Angel One is now expanding into new verticals, including asset management, where it plans to launch passive investment products and ETFs; wealth management, where it is targeting high net worth clients with personalised advisory services; credit products, offering unsecured personal loans in partnership with NBFCs, and insurance distribution.

But will these new ventures pay off?

Building an AMC is a slow grind. Zerodha and Helios Mutual Funds, despite launching in 2023, have only amassed Rs 4,000 crore and Rs 3,000 crore in AUM, respectively. Even if Angel One gains traction, the payoff may be modest—top players like HDFC AMC earn just 0.4 per cent of their AUM as profit.

Similarly, giants like Paytm (4.2 crore registered merchants) and PhonePe dominate the digital financial market, posing a formidable challenge for Angel One to expand into credit products.

The road ahead

Despite its efforts to diversify operations, Angel One's immediate future remains clouded by regulatory challenges and declining trading volumes. The company's move to expand into asset management, wealth services, and credit products may reduce reliance on broking revenue, but it's still a long road.

Besides, more regulatory developments cannot be ruled out, which keeps the company's earnings vulnerable to further decline. Investors should remember that not every low-valued stock is a bargain after all.