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5paisa - Aggressively Growing Discount Broker

Brief Background About the Company
5paisa is a financial services company with a focus on “discount broking” services, providing financial products through an online technology platform and mobile application. 5paisa is a depository participant of CDSL and also a trading cum clearing member of BSE and NSE.

Services of 5paisa
Discounted stock broking services
Clearing and Depository Services
Mutual fund distribution
Distribution of other financial products

Recently, company has formed a wholly owned subsidiary namely 5paisa P2P Limited (“5paisa P2P”) which will operate as a peer-to-peer lending platform. An in-principle approval for registration as NBFC peer-to-peer lending platform (NBFC-P2P) from RBI has been received.

Discount Brokerage Industry
These brokers offer services at low and fixed brokerage fees, irrespective of size of order and provide such services via an online platform. Discount brokers typically do not provide any cost intensive facilities and services such as physical offices, research reports and relationship managers. Currently, there are more than 15 discount brokers in India. As per the annual report from the company during the period FY 14 to FY 18 the market share of discount brokers has increased from 1% to 8%. USA was the pioneer in discount broking where currently about 70% of the retail broking is conducted through discount broking.

What is exciting about the company
Company has declared the financial results for the period December 2019 the revenue of the company has increased by 50% in a single quarter while the cost has increased by only 5%. Press release and financial results have been attached.

Discount brokers are gaining market share rapidly, effect of this can been seen in the quarterly results of ICICI securities

The growth of discount brokers can be seen on the following links
Discount broker active clients 2018
https://www.chittorgarh.com/report/top_10_discount_brokers_in_india_by_clients_at_nse/3/?year=2018

Discount broker active clients 2017
https://www.chittorgarh.com/report/top_10_discount_brokers_in_india_by_clients_at_nse/3/?year=2017

5paisa has increased the clients 3 times from 2017 to 2018

I have tried to pullout the financials of other discount brokers from the ROC data. Zerodha and RKSV are the main competitors of 5paisa. I could not found the data for Zerodha but i have found the data for the RKSV (Balance sheet has been attached). As per the link
( https://yourstory.com/2017/02/zerodha-3 ) zerodha has reported the profit of Rs 120 cr on the turnover of Rs. 220 crores in the financial year 2017-18, which is very impressive at the same time zerodha has grown aggressively after 2017-18.

RKSV has grown 100% from FY 2017 to FY 2018 (financials extracted from the ROC data has been attached). The turnover or RKSV has grown from 13.24 in FY 2017 to 26.78 FY 2018, while its expenses have grown only marginally. The company also reported profits in FY 2018.

I have extracted the financials of other zerodha group companies same has been attached herewith.

Open offer
Recently company came with the open offer for raising around 100 crores.

The proposed utilization of Net Proceeds is set forth below:
(in ₹ million) Sr. No. Particulars Amount

  1. Business and operations expansion 240.00
  2. Manpower expenses 141.60
    3.Margin maintenance with stock exchanges 450.00
    4.Investment in our Subsidiary 50.00
    5.General corporate purpose

New Clients Acquired as per offer letter
April 2018
7,121
May 2018
7,671
June 2018
8,535
July 2018
10,390
August 2018
12,569

The Company proposes to push the process of customer acquisition through an aggressive marketing drive. Company targets at acquiring additional 200,000 clients in a time frame of 12 months. Company therefore earmark proceeds of ` 240 million i.e. 50% higher budget than the Fiscal 2018 for branding and business development purpose. We intend to achieve 4X growth in customer base with an increase of just 50% in acquisition expenditure over the previous year. The estimate considers the growing recognition of the brand and increasing benefit of customer growth by word of mouth.

Risks
Company has reported losses of Rs. 23 cr on the turonver of Rs. 49 cr (TTM revenue) as the same time RKSV has posted the handsome profits on turnover of Rs. 26 cr.

I have no idea about the management of the company.

Conclusion
In my opinion company can report good amount of growth in the coming years as the industry expands. The company can be multibagg
er from 3-5 year perspective.

Disclaimer
I own 2% of my portfolio in the 5paisa which has been recently been acquired
.
This my second topic on the value picker.
this is not an investment advice,

Link for open offer document

Press release Q3

Annual Report report and fiancials
https://www.5paisa.com/investor-relations

Zerodha Securities Financials_2017-18.pdf (2.7 MB)

RKSV AR and Financials 2017-18.pdf (2.0 MB)

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I am useing 5 paisa for my one family member. It’s very easy to use , and their charges are least . It’s web and app is very easy to trade .

Paytm Enters the Stock Broking Business

Paytm’s subsidiary - Paytm Money (launched in Sep 2018), which sells MFs and claims to have already crossed over 1 Mn user mark within some months of its launch, has received market regulator SEBI’s approval to become a stock broker as well as has also signed a partnership with the BSE and the NSE.

Other market players too are making the competition tougher.
Axis Direct and Angel Broking came up with discount broking products.
Axis Direct introduced a plan ‘India Trade @20’, under which its customers would be charged a flat fee ₹20 per trade.
IFC-backed Angel Broking rolled out flat-pricing for trades, wherein it would charge ₹15 for order sizes of up to ₹50,000, and ₹30 for those beyond.

The entry of the Softbank & Alibaba backed player, Paytm Money will intensify the pricing battle in the retail broking space and squeeze margins further.

In January, Paytm Money had said it has more than 1 million users on its platform.
In March, Paytm Money raised Rs 28.87 crore from parent One97 Communications Pvt Ltd.

Paytm Money has capital, technology, customer acquision pace, huge cash to give discounts and an already available base of 30 crore registered Paytm wallet users.

FYI, A report by industry body ICRA showed that the Indian broking industry revenue pool is expected to increase to reach INR 190 Bn in FY2018, registering a 15-20% y-o-y growth on the back of healthy volume growth coupled with rise in cash volumes.

As of December 2018, Zerodha had 8.47 lakh active clients,ICICI Securities’ 8.45 lakh customers, HDFC Securities’ 6.74 lakh, Sharekhan’s 5.49 lakh, Axis Securities’ 4.17 lakh and Angel Broking’s 4.16 lakh

What intervention will 5PAISA do to safeguard themselves from this huge competition in the brokerage market?

(I am a bit new to investing, as an investor how can one ask the 5PAISA management this question?)

Disc. : Invested

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5paisa has posted amazing numbers in Mar '19 Quarter.

Positives:

  • Mar 19 Quarter saw the company becoming operationally profitable.
  • YoY revenue growth rate 219%. Might not be possible to maintain the same pace next year but this growth rate tells a lot about the Discount Broking Adoption and the possible market.
  • Total expenses remained flat at 22+ Cr in the last 3 quarters while revenue grew from 12.7 Cr -> 21.8 Cr
  • Company raising 100 Cr through rights issue for growing existing business & fund P2P lending business.

Negatives

  • They have reduced the other expenses spend by 2 Cr in Mar '19 Quarter (14.8 -> 12.8). In case this is cut in advertising spend, they would need to continue it to gain market share.

Highly likely that company would start posting profits in Q1FY20.

I am estimating a probable PBT of 30 Cr and PAT of 20 Cr for full year FY20.

Disclosure: Not invested but interested.

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How good in comparison to zerodha

I have not used zerodha. But 5 paisa back office accounts representation is very very good. Also trading platform is nice and easy to use.
Charges are transparent and don’t have any issue.
Except … their call centre It
Was worst in beginning. They may have kept all commerce graduate so didn’t knew any details in some tricky problems if u face. I had to write few emails for my one complicated issue but was resolved.
Now I don’t know status of call centre as I don’t have any issue .

5paisa’s record date for rights issue is May 29th.

Disclosure: Invested

Hi All,

Compiled the growth of active accounts across some of the Indian brokers from July 2017 till March 2019 based on the data available.

There is a resounding trend of Discount brokers amassing market share.

From July 2017 to Mar 2019 (20 months), while the overall number of active clients across all brokers grew by 22.9%

  1. ICICI and HDFC demonstrated a growth of 24.38% and 34.11%
  2. Discount brokers like Zerodha, RKSV and 5 Paisa demonstrated a client growth of 237%, 301% and 1043%.
  3. While 5Paisa’s growth might be on the back of a smaller base in July 2017, this shows a very clear trend of market share gain of Discount brokerage firms

Source: https://docs.google.com/spreadsheets/d/1OEvkisz4irKwjxXQGiAuKZLMTJSQtJwScr7j_gtdZ7g/edit#gid=1627640984

1 Like

Disc: Invested with a bit high allocation

Based on numbers realeased on NSE, the number of clients on 5 Paisa grew from 121542 (May 2019) -> 147499 (June 2019)

March 2019 -->106280

https://www.nseindia.com/invest/content/arbitration_reports/report_1c_2019_20.htm

Results are out.

Revenue, Profit stayed at the same levels QoQ;

Market expected them to post a profit after seeing their phenomenal revenue growth in 4 quarters before. Stock is on 4th LC in a row because of this expectation mismatch.

Another strong month of account additions. 40k+ for July. 194k accounts

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Zerodha has sent out an interesting mail after completing 9 years. Some interesting points to understand more about this Industry:

  1. 1 million active clients out of 1.6 million customers
  2. 15% of retail trading turnover on the exchanges without spending any money on advertising.
  3. Processing over 2 million trades a day.
  4. All clearing charges on F&O trades are waived off.
  5. Coin goes completely free in Aug 2018. DP charges on redemptions are waived off in March 2019.
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Please find the sector update from HDFC Securities. Has wealth of information on Zerodha numbers and breakup.

Broking - Update - Mar19 - HDFC sec-201903191711243793044.pdf (471.3 KB)

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Discount brokers continue to gain market share.
Source: Tijori Finance

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August Clients 212234

What is the addition month on month ?

August 2019 --> 212234
September 2019 --> 234338 [month on month addition: 22104]

RKSV is maintaining the lead over 5paisa. RKSV [upstox] has added 39,029 accounts.

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Source:https://twitter.com/i/status/1184676661423300609

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