Angel Broking IPO: Information Analysis

Introduction The IPO season has started with a bang. The two recent IPOs, Happiest Minds and Route Mobile, got subscribed 170 and 74 times, respectively. Amidst the COVID-led lockdown starting from March, a sudden spurt has been noticed in the retail participation in the stock market. As of June 2020, the number of active accounts with CDSL reached an all-time high of 2.3 crore - a jump of around 10 per cent from the March-2020 level. More astonishingly, during Q1FY21, the average daily trading volume for cash market retail increased by a whopping 66 per cent over the same quarter last year. And the industry that is reaping the benefits of this ongoing trend is surely the broking industry. Angel Broking, the fourth largest broking firm in India as per active client accounts on NSE, provides broking and advisory services (75 per cent of the FY20 revenue), margin funding (9.5 per cent), loans against shares and financial products distribution to its clients. The company provides its services through online and digital platforms on the back of a network of more than 11,000 sub-brokers as on June 30, 2020. The company follows a flat fee-based model wherein it charges zero for delivery and Rs 20 per trade for intraday, F&O and commodity trades. It also provides margin funding for up to 79.55 per cent of the purchase value by the client. Margin trade funding is a practice wherein the broker lends to the investor against cash or securities as collateral. The investor is able to take leveraged bets and increase his/her profits using this facility. As on June 30, 2020, its margin trading facility book of Rs 768.70 crore was spread over 143,287 clients. Strengths: 1) Scale and size: The company is the fourth largest retail broking house with around 6.3 per cent of active clients on NSE as of June 2020. With a network of more than 11,000 sub-brokers, along with a digital presence, it is able to reach the length and breadth of the country. Over the past three years until March 2020, Angel Broking managed to acquire more than 80 per cent of its clients from tier-2 and beyond cities. It is a reflection of its scale and size. 2) In-house research: The company also provides advisory services through its in-house research team of 54 members who are conducting both quantitative and qualitative research. Further, under the ARQ advisory, it provides rules-based investment advisory, which is based on the modern portfolio theory. Weaknesses: 1) Business segment concentration: The company's main revenue source is the broking business, accounting for around 75 per cent of the total revenues. Unlike other brokerage houses that have managed to diversify themselves into wealth management, advisory services and others, Angel Broking hasn't been able to do such diversification. 2) Intense competition in commoditised business: Ever since the business model of broking firms moved towards a flat fee-based model, broking business has become more and more commoditised. Newer companies like Zerodha, Uptsox, Groww, etc., backed by PE firms can easily take away market share from legacy players. Risks: 1) Regulatory risks: The company is subject to extensive supervision and regulation by various regulatory bodies. Any new change initiated by the regulatory body can materially impact the business. For example, SEBI has recently changed the margin-trading rules wherein a broking firm is now required to col