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Despite a strong IPO season, the stock of Angel Broking Ltd, one of the largest retail brokers in India, listed with a discount of about 10 per cent to the issue price on Monday. The stock made its debut at Rs 275 versus its issue price of Rs 306 a share on the National Stock Exchange. The company’s share marked an intraday high of Rs 296.7 and an intraday low of Rs 257. At 14:30 hrs on Monday, the company was trading around the listing price of Rs 275.
While the stock seemed quite expensive at the issue price, with the then price-earnings multiple of 30 (post-issue) its FY20 earnings, the valuation has dropped to about 27 considering the listing price.
Even at the current price levels, the stock seems unattractive as its other listed peers such as ICICI Securities that are is comparatively cheap or with better financial metrics.
Higher valuation and declining profitability have dimmed the appeal for investors. The sluggish response can be witnessed from the tepid subscription. While recent IPOs, including Route Mobile and Chemcon were subscribed by 73 times and 150 times respectively, the Angel Broking issue was only subscribed nearly four times.
Declining profitability and increasing competition have overshadowed positives such as the solid new client addition numbers for the company. The operating profit margin dropped from 21 per cent in FY18 to 16 per cent in FY20. Between FY18 and FY20, the net profit declined by 12 per cent CAGR from Rs 107 crore to about Rs 82 crore.
Profitability has taken a hit as the company has moved to the discount broking model. Intense competition leaves very less room to increase the brokerage, at least in the near future. So, going forward, the company needs to cut costs to offset the revenue loss because of the lower brokerage being offered.
The IPO size was Rs 600 crore, of which Rs 300 crore was an offer for sale (OFS) and the remaining through fresh issue of shares. The proceeds will be used to fund working capital requirements and for general corporate purposes.
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