Angel One: Metamorphosis into a Fintech? (Previously Angel Broking)

Angel Monthly update pre cursor - if below F&O data based thesis in above posts hold good, Angel should post good MoM updates, continuing its journey, as long as market share holds.

  • Apr 22 to May 22 transition- data available only for one working day in May and apparently May 1st onwards F&O margins were getting stricter - again looks growth - though we should see few more days

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  • UpStox is now largest broker by total users (10M users).
  • Continuing to see momentum in FY23. Can reach 25-30M users by end of FY23.
  • my inference : zerodha is slowing down coz others have caught up, cant generalize zerodha’s slowdown to other brokers.
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Finally the monthly updates are here.

  1. Client acquisition is as strong as ever. Up 5% MoM.
  2. Total orders down 10% MoM in line with # of trading days
  3. Commodity adto down, while f&o adto up (most imp data point to look at imo).
    Edit:

After discussing with @Jehan_Bhadha have decided to sell because there was a mistake in my calculation and the revenues are indeed slowing down for both broking industry & for angel (correlated to total orders).

Disc: not invested any more, this is not a buy or sell reco

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Sahil there mobile application doesn’t work 2/5 days… Even today it is not working from morning… Keep this in mind… More than hour and its still not working… Active traders will keep a distance from such brokers…

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  • Q1 had 210.8M orders

  • For QoQ growth of 5% they need 221 M orders

  • after deducting April 66.1M orders, they need 155 M orders in Q1

  • May has 20 days and June has 22 days, at 3.5M per day runrate for past few months, for May & June they will end up doing 147 M orders. So Q1 about 213 M orders -

Net net looking flattish QoQ unless per day order grows which seem to have plateued.

@sahil_vi , @Jehan_Bhadha - for benefit of other folks, can you confirm if above is the thesis you are sort of looking at?

Sebi recent Sebi margin guidelines also affect margins/working capital for brokers - this is also a sort of headwinds as well.

Ofcourse decision lies with each individual.

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Yes.
Now all depends on orders per day for May.

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jus that … their much hyped new product migt bring in new optionalities … but since past 1 year we are hearing the same story that it is in beta … and MF insurance will take time … they talk too much but their applciation sucks big time.

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Yes.

Also, to me personally it was a mix of 4 factors :

  1. Entire broking industry is facing headwinds from zerodha, icici securities, everyone. (Like of upstox can show user growth at cost of profitability but angel cant do that)
  2. Fed quantitative tightening balance sheet shrinking increases probability of valuation contracting, trading reducing (liquidity is literally being sucked out of system)
  3. Angel monthly orders have degrown by 10%. In previous monthly updates even in months with lower number of trading days, mostly number of orders grew secularly indicating increasing trading activity
  4. If there is a large 5-6% Nasdaq 10% us midcap tech fall overnight does it let me sleep with peace at night, or does it make me wonder about whether angel will fall 5% or 10% tomorrow? I think peaceful sleep is probably most underrated criterion of investment
  5. There is definitely an element of security timing in my investment framework. Business headwinds are to be sold into. Business tailwinds are to be bought into. I always have option to change my mind with more data. But my hunch is it’ll already be too late by time of may updates & i would have lost any alpha angel has generated (not just temporarily but permanently) by time may updates come (because i expect them to also be poor, probabilistically speaking)
  6. Angel has actually not been listed in a period of deep pain while it was giving monthly updates from what i have seen. So this definitely helps understand the business direction vis a vis deep corrections better - can potentially provide more conviction if i decide to own angel again in future

Disclaimer : not invested but definitely tracking

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Algo traders are not happy with Angel Broking… I closed my account with Angel as I felt there is some problem in order execution with Angel Broking.
Error in execution of order is highest in Angel. No such problem is faced with other brokers. slippage is also highest with Angel trading which was costing a lot as there was high frequency trading with Algo.
After giving a try for two months I finally exited… Closed my account… I don’t know whether anyone is facing the same issue or not but this was my personal exprience and I didn’t like the Angel at all.

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Have been on the sidelines wrt Angel since 1100 levels. Did not enter because as a long term hold, wasn’t comfortable with only F&O fueled growth because that is not sustainable in my opinion. As Nitin Kamath keeps saying, for a profit pool to be sustainable, the clients have to keep making money. If they make losses - and big ones are possible in a risky segment like F&O - they probably blow their capital or lose trust and don’t return for a while. Angel with its Tier2/3 clientele led F&O growth was always a hugely cyclical play in my opinion.

Agree with the sentiment that this is the right time to have sold Angel as this is probably the cycle top wrt high frequency trading. Kudos to people who spotted this opportunity early and made a handsome return. These profits and growth rates are probably not going to return for a while for Angel, so no point holding it and see returns evaporate. Unless it figures out a way to help its clients in making money in bear/choppy markets. But educating the client base is a long term, low reward process. Most people want quick money by trading, a handful want to learn how to trade. I am sure Zerodha doesn’t earn anything from Varsity, even though its the best thing out there from a broker in terms of learning.

Will be on the lookout for Angel disproving this thesis over the next few quarters although I think its unlikely.

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Yes, the broking industry might see some stagnation going forward. There should be very little debate about it but the penetration is still low. People might give up trading because the markets are going down but they will be the first one to return when the markets move up. We all have witnessed what happens after a correction, ATH are taken out and market reaches new levels. Many retail investors have seen the same and will return to trading.
Apart from the fundamental view point, there is an inorganic growth with all the financial literacy theme in the media today. I get more than 10 videos on investing in my suggestion box. Apart from that, startups like Small case, are getting popular. People require a demat account to avail their services, to apply for IPOs.
Conclusion, we might see the slowdown but at current valuations of not more than 20PE, a fair price comes around 1500rs per share. That is very conservative valuation acc. to me.

Angel has published the monthly business update. Below I have complied data from Aug-20 onwards as they have started publishing these numbers from Aug-21. I can see there was decline in month of Apr-21 as well in terms number of orders. Not sure about the cyclicality here. Also, earlier they were publishing number of trades and now they have shifted to number of orders.

I talked to few traders and asked them if they are able to make money when markets fall. Few of the traders mentioned they earn money by short selling as well. So just calculating the number of lower trades will not materialize in lower revenue for broking company as these discount brokers will get paid for every trade irrespective of volume.

Also, below is the answer given by Mr. Dinesh Thakkar when he was asked about volatility in earnings in case of market meltdown in Q3FY22 Conference call.

Views invited.

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It’s not about lower trade volume, it’s about the fall in growth rates from 60% to 40% to 20% to flat.

If angel revenue is slowing down, then it’s valuation will derate similar to other brokers. Study ICICI sec

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I have studied ICICI Securities. They come in the traditional broker category. Angel One has a huge advantage over the traditional brokers. And if you closely watch their client base, 45% are commodity traders, which are mostly pro traders. Yet ruling out any degrowth would be stupid but it is highly improbable that their growth will crash from 60% to 0%.

Also considering the launch of their super app, if successful, can be a great source of commission income for them. Angel Bee( Mutual Fund App of Angel) can be updated like Groww or Cherry by Kotak Mahindra Bank, to give us another app for managing our investments.

Being more ambitious, if they somehow facilitate US Stock Investing, that will be a game changer for Angel One. The growth prospects for a company like Angel is huge. It is not trading at crazy valuations, so that is a relief. We just need to wait for their quarterly earnings to come. Their earnings will reflect, if their data about retail participation is right or wrong.

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They have launched new Interface for desktop also. I was using Angel Spark app for quite some time and there are some similarities with Angel Spark and Desktop Website.The UI is very clean and text,Icons are very clear. I am attaching the Screenshot for reference. The order window is same as mobile angel Spark application with same UI. You can easily see all the Statements i.e P/L,Ledger,Contract Note. The one thing i liked the most is the Keyboard Shortcut for the website.I am seeing this for the first time in any website. Like you can press P and it will directly take you to your portfolio page, o will directly take you to your order page and many more.

You can access the new Website with link
trade.angelone.in

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This is a shallow cyclical stock due to flat fee revenue model. so conventional revenue forecast assuming linear growth doesn’t work out. See the historical valuation of other brokers. Plus this stock was getting higher valuation compared to other brokers due to consistent quarter on quarter growth for past quarters since ipo. Now we are in a bear market so people will tend not to trade or for the best new people will not enter the market that will cause slowdown the qoq growth of angel. which is apparent in the monthly data they publish. Other traditional brokers are full cyclical so compared to them angel will see less degrowth.but angel was getting higher valuation compared to them for high growth and when growth slows a high growth stock sees derating.

For understanding valuation of cyclicals see steel companies, auto ancillary companies. if you see the price/sales and price to book value graph in screener over last 10 years you can see very nice pattern. we are going down in steel cycle and going up in auto cycle. valuation will show the same.

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Nitin Kamath just shared the below tweet.

It’s a chart of unique monthly active users (as identified by pan numbers) in Indian capital markets released by RBI. Apparently this data is publicly available for the first time. Will be very interesting to follow this data as the bear market intensifies.

Kamath is a sureshot follow on Twitter for anything related to the broking industry.

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Broking is a industry with graph like
Y= X + sinx
2 steps forward 1 step backward
And cycle repeats

Secular growth which is cyclical in nature. Time to sell was when the monthly numbers started trending down.

Time to buy will be when we start seeing month on month growth in trading volume for angel. Ye bhi hoga. Because the secular trend is one of growth

Beauty is : at that point valuation willl be depressed so we willl get the double engine of growth + valuation rerating. Need to patiently wait for it to happen

Disclaimer: was invested, sold out around 1700 when MoM degrowth started, will invest again when data asks me to

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