Markets
Angel One faces a Hobson’s choice after dull June quarter
Summary
- The going could get tougher for Angel One when Sebi’s new norms on ‘true to label’ pricing kick in as it might have to charge brokerage fees for cash delivery segment and face the risk of losing clients
Angel One Ltd's results for the June quarter (Q1FY25) indicate a slowdown in growth, evident from the drop in client additions and financial performance. The company added 2.6 million clients, down 10.5% quarter-on-quarter. Fees and commission income, constituting about 80% of total revenue, was flat sequentially at ₹1,108 crore.
Interest income, the other revenue stream grew 19% quarter-on-quarter to ₹294 crore, but it's likely that this was mostly led by the equity funds worth ₹1,500 crore that Angel One raised through QIP in the first week of Q1.
Assuming a 2% interest for the quarter on fresh equity, the interest income works out to ₹30 crore. This could well be the reason that normalized profit before tax (PBT) grew by ₹28 crore, which would have otherwise fallen marginally. Here, the normalized PBT is before considering the IPL-related expenses and net gain on fair value changes.
But investors have other worries. Angel One’s shares have dropped steeply by 43% from its all-time high of ₹3,895 on 9 January. Notwithstanding the dull Q1 results, the going could get tougher for the company when Sebi’s new norms come into force.
The market regulator has recently issued a circular mandating ‘true to label’ pricing, effective 1 October. This regulation requires brokers to charge clients exactly what they pay to market infrastructure institutions (MIIs), eliminating the practice of brokers earning rebates based on volume discounts. Simply put, brokers like Angel One will no longer be able to earn these rebates, which has facilitated them to keep a zero-brokerage structure on some categories. In Q1FY25, Angel One earned ₹110 crore as incentive from stock exchanges, almost 22% of the normalized PBT.
Now, Angel One is left with Hobson's choice. The company is currently not charging brokerage fees for its cash delivery transactions. After the new rules are implemented, it might have to start charging brokerage fees, which could mean the risk of losing clients in the cash market. The other option is to make up for the loss of cash delivery brokerage by charging higher brokerage in the derivative segment of futures and options (F&O). But this may also lead to the loss of clients in the F&O segment. In either case, the new Sebi order is set to have an adverse impact on business.
Angel One’s shares trade at 15 times estimated FY25 Bloomberg consensus earnings per share. While this may appear reasonable, the eagerness of Sebi and the finance ministry to curb trading volumes in options with frequent changes makes outlook on earnings hazy.
Also Read: Retail investors and the draw of options trading, and why regulators are worried
