AngelOne Is Staring At Sharp Decline In Profitability

One of India’s leading discount broker, AngelOne Ltd., is staring at a sharp decline in profitability led by its broking segment after market regulator SEBI's true-to-label norms kick in from October 1, 2024.

"The ancillary transaction income linked to the value of the orders executed by our clients on our platform remained stable at Rs 112 crore and accounted for nearly 8% of our quarter one total gross revenue," said Vineet Agrawal, Chief Financial Officer at AngelOne during the earnings call.

A closer look shows that this amounts to 26.7% of the earnings before depreciation, amortisations and taxes and 38.2% of the profit after tax.

It is noteworthy that SEBI recently issued circular of July 1, 2024, on true-to-label charges which discouraged stock exchanges from charging turnover based fees to brokers. For AngelOne this amounted to net income of Rs 350 crore in fiscal 2024.

The brokerage claimed that it has enough levers to offset this impact, not ruling out a change in pricing.

The big problem it faces is that the top five digital brokers constitute 65% In total NSE active client base of 4.4 crore investors and any change in pricing will have an impact on its market share and shifting of fee-sensitive investors to other digital platforms.

The move should also be seen from the point of view that stock exchanges have moves to reduce illiquid collaterals which will see phase-out of over 1000 stocks from the collateral list thereby increasing leverage or reducing trading volumes.

Further, SEBI’s secondary market advisory committee has recommended to increase the size of the lots in the derivatives market to discourage retail trading.

Broking revenue constituted 65% of the revenue for the discount broker which saw its revenue increase marginally on a quarter-to-quarter basis and profit after tax decline to Rs 292.7 crore in Q1 of the current fiscal year from Rs 340 crore in the fourth quarter of fiscal 2024.

To be clear, the contribution of broking revenue has declined from 69% at the end of June 2023 to 65% at the end of June 2024.

The gross broking revenue will be impacted by lower brokerage from F&O segment which stood at 84% of total broking revenue at the end of June quarter.

For AngelOne 80% of the volumes comes from 20% of the clients, the company had said in the earnings call to the analysts. True-to-label pricing will impact on its revenues going forward.

Angel One acquired 26 lakh clients in the first quarter, with 90% from cities, from Tier 2, Tier 3 and beyond, expanding our client base to over 2.4 crore.

It currently has a client base which has increased its share in India's demat account to 15.2% as of June 2024. Its clients executed over 46 crore orders during the first quarter, translating into an Average Daily Turnover of nearly 44 trillion which translates into 18.9% share of overall retail equity turnover.