Angel One: Q2-25 Earnings Call Highlights
Strong performance despite muted volumes. Facing regulatory challenges & investing in new ventures, ANGELONE continues to showcase strong performance & remains optimistic about the future
angelbroking.com | NSE: ANGELONE
1. Key Takeaways
1.1 TLDR
While facing regulatory challenges and investing in new ventures, the company continues to showcase strong operational performance and remains optimistic about the future.
1.2 Key Themes:
Financial Performance:
Strong operating and financial performance despite muted volumes.
Robust margin profile, with reported consolidated EBDAT margin at 49.9%.
Regulatory Changes Impacting Trading Volumes: The new SEBI regulations, including the "true-to-label" rule and adjustments to the derivatives segment, are expected to impact trading volumes in the short term. Angel One has proactively implemented tariff adjustments to mitigate the revenue impact, such as introducing brokerage on cash delivery orders and charging interest on disproportionate non-cash collateral.
"While these adjustments may potentially result in short-term softness in trading volumes, they are expected to fortify the market in the long run."
"Taking into consideration the permanent impact of the true-to-label transition charges, we implemented several proactive tariff adjustments, including introduction of brokerage on cash delivery orders and the imposition of interest on disproportionate non-cash collateral offered as margin exceeding ₹ 50,000"
Impact of SEBI Regulations on Revenue:
Estimated impact of 13% to 14% on net income from broking and related activities.
Confidence in mitigating the impact through new customer acquisitions and product diversification.
"But our estimation is that impact would be roughly in the region of around 13% to 14% of net income that we get from the customer." - Dinesh Thakkar
Focus on New Business Initiatives: Angel One is aggressively pursuing new business opportunities, transitioning from a broking app to a Super App. These initiatives include the distribution of credit products, fixed deposits, and the expansion of wealth management services.
Launched a credit platform, disbursing a total of ₹ 3.6 billion.
Started distribution of fixed deposits through partnerships with banks and NBFCs.
Achieved a milestone in mutual funds with over 2.3 million unique SIP registrations.
Expanding wealth management services, focusing on the underserved HNI segment.
"In addition, we are augmenting our relationship managers' bandwidth as we focus on penetrating and serving clients in Tier 2 cities. We strongly believe that there is a tremendous growth opportunity, especially in the HNI segment, which is currently the underserved segment." - Shobhit Mathur
Strong Operational Performance Despite Headwinds: Angel One reported strong operational results, acquiring approximately 3 million new clients and expanding its Demat account market share to 15.7%. This growth was driven by the company's focus on client acquisition, particularly in Tier 2 and Tier 3 cities.
Acquired approximately 3 million new clients, with 90% from Tier 2, Tier 3, and beyond cities.
Total client base exceeding 27 million, making Angel One one of the largest players in the industry.
Executed nearly 490 million orders during the quarter, with an ADTO of over ₹ 871 billion.
Achieved a 19.3% market share in overall retail equity turnover.
"Operationally, Angel One delivered strong results in quarter 2 FY'25, acquiring approximately 3 million new clients with about 90% coming from Tier 2, Tier 3 and beyond cities. These acquisitions mean our total client base exceeds 27 million clients, making us one of the largest player in the industry." - Dinesh Thakkar
Employee Costs:
Sufficient spend on employee costs for current business activities.
Potential for future increases if new growth opportunities arise.
1.3 Angel One's Responses to Analyst Concerns:
Impact of SEBI regulations on trading volumes and revenue.
Confident in mitigating the impact of SEBI regulations through customer acquisition and product diversification.
Competition in the margin trading facility (MTF) space.
Adjusting MTF interest rates based on market dynamics and profitability.
Burn rate and profitability timeline for new business initiatives.
Burn rate for new businesses is in line with previous guidance, and these initiatives are expected to be profitable within the next 1.5 to 3 years.
Angel One Limited Q2 FY'25 Earnings Conference Call FAQ
1. What is Angel One's response to the recent SEBI regulations, particularly the "true-to-label" rule and changes in the derivatives segment?
Angel One has implemented several proactive measures to mitigate the revenue impact of the "true-to-label" regulation, including introducing brokerage on cash delivery orders and charging interest on disproportionate non-cash collateral exceeding ₹50,000. While the changes in the derivatives segment, such as increased contract sizes and rationalization of weekly expiries, may cause short-term softness in trading volumes, Angel One remains optimistic about the long-term outlook. The company believes that these regulations will strengthen the market in the long run and enhance the lifetime value of clients by reducing their losses.
2. How does Angel One plan to maintain its profitability amidst potential volume fluctuations due to regulatory changes?
Angel One emphasizes its focus on unit economics and a sustainable business model. The company's digital model allows for economies of scale and superior lifetime value while optimizing client acquisition costs. Angel One is confident in maintaining a robust profit margin despite evolving customer demographics and regulatory changes. They are open to price adjustments if necessary, but believe their platform offers significant value beyond price sensitivity.
3. What is the progress and revenue model for Angel One's new business ventures, specifically loan distribution and wealth management?
Angel One is aggressively expanding into new business areas, aiming to become a leader in distribution services for products like loans and insurance. The loan distribution platform has already disbursed ₹3.6 billion, with a take rate on par with or slightly better than market standards. The revenue model involves a one-time payment for each loan disbursed, including repeat loans. For wealth management, the company is building a team of relationship managers and has started publishing content and offering third-party distribution of products like mutual funds and PMSs. While it's still early, Angel One expects these new businesses to break even within the next 1.5 to 3 years.
4. How does Angel One address concerns about potential loan defaults in its distribution business?
As a distributor, Angel One does not carry the credit risk for the loans it facilitates. The default risk lies entirely with the partner NBFCs or banks. Therefore, loan defaults do not have a direct financial implication on Angel One's business.
5. What is the company's strategy for customer acquisition and retention in light of the evolving regulatory landscape?
Angel One remains committed to expanding its market share and aims to leverage its digital platform to attract and retain clients. The company will continue its marketing efforts, including IPL sponsorship, and focus on providing a superior customer experience to drive organic growth. Angel One believes that satisfied customers who experience lower losses are more likely to stay engaged with the platform for the long term, leading to enhanced lifetime value.
6. Is Angel One concerned about competition affecting its Margin Trading Facility (MTF) growth, given the recent interest rate reduction?
Angel One reduced MTF interest rates based on market opportunities and internal assessments of business viability, not due to competitive pressure. The company prioritizes the growth and offtake of its MTF book and believes the current rate is attractive for customers while ensuring a viable business model. Angel One remains focused on expanding its market share and will adjust pricing as needed to capitalize on growth opportunities.
7. How does Angel One plan to monetize customers using its direct mutual fund platform while also operating a regular mutual fund distribution business through its wealth management arm?
Angel One acknowledges the distinct nature of its direct mutual fund platform and wealth management services. The platform caters to self-directed investors seeking direct plans, while wealth management targets individuals seeking personalized advice and willing to pay for regular plans. The company sees no immediate need to monetize direct plan users, as they contribute to platform engagement and potentially utilize other Angel One services. The wealth management arm will focus on attracting high-net-worth individuals who value advisory services.
8. What is the update on Angel One's Asset Management Company (AMC) license application and the expected revenue from this business?
Angel One confirms that its AMC license application is in its final stages, and they expect approval soon. However, it's premature to project revenue targets until the license is granted and operations commence. The company's immediate focus is on securing the license and establishing its presence in the asset management market.
Angel One confirms that its AMC license application is in its final stages, and they expect approval soon. However, it's premature to project revenue targets until the license is granted and operations commence. The company's immediate focus is on securing the license and establishing its presence in the asset management market.
Source: Link to Earning Call Transcript
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