ANGELONENSEQ1 FY23July 13, 2022

Angel One Limited

15,786words

121turns

15analyst exchanges

0executives

Key numbers — 40 extracted

6.9 million

After a very strong FY22, the broking industry started the current year on a positive note with 6.9 million new demat accounts opened and cash and F&O ADTO for the industry witnessing a sequential

10%

accounts opened and cash and F&O ADTO for the industry witnessing a sequential growth of 10% in Q1 FY23. All this despite a somber macro environment, which was dampened due to risk-off senti

Rs. 1.4

r 9 consecutive months now, retail investors have been net buyers with direct investments of over Rs. 1.4 trillion in the cash segment on NSE. As on March 2022, holding of retail investors in India Inc. c

9.7%

on NSE. As on March 2022, holding of retail investors in India Inc. continued to remain steady at 9.7%. All this only highlights the growing financialization of savings of Indian economy. This is a

rs,

e over many quarters. Even in tough market conditions, as witnessed over the past couple of quarters, we have been able to protect our turnover market share while expanding our share in total Demat ac

35%

nal metrics of our Super App. I am happy to share that the Board has approved the distribution of 35% of quarter’s consolidated post-tax profits as the first interim dividend to the shareholders. The

30%

lifetime relationship with clients. On the IOS Super App version, we have reached approximately 30% active user base by June end, which comprises both migrated and new users. We are experiencing

80%

curity, lower drop rates, better monitoring and alerting requirements. This has contributed to an 80% reduction in the time taken to load banking pages for our clients across all apps. In Q1 FY23,

10 million

erational performance, Q1 has been historic as we have been one of the few players to surpass the 10 million client mark. Other parameters around our operational and market share are, we acquired 1.3 millio

1.3 million

10 million client mark. Other parameters around our operational and market share are, we acquired 1.3 million clients on a gross basis during Q1. 95% of these clients came from Tier-2, Tier-3 cities. This le

95%

r operational and market share are, we acquired 1.3 million clients on a gross basis during Q1. 95% of these clients came from Tier-2, Tier-3 cities. This led to a 51-basis point expansion in our D

10.8%

e from Tier-2, Tier-3 cities. This led to a 51-basis point expansion in our Demat market share to 10.8%. On an incremental Demat account basis, our market share expanded to 17.5%. Our NSE active client

Guidance — 20 items

Hitul Gutka

opening

“As a reminder, I would just like to inform you all that the company does not provide any operational and financial guidance.”

Dinesh Thakkar

opening

“Going forward, as these first-time investors mature in the system, their contribution to the overall metric will also improve.”

Dinesh Thakkar

opening

“and the same will be leveraged in the other areas of business as well.”

Narayan Gangadhar

opening

“Using the portfolio analyzer, clients will be able to monitor the return performance at the stock and sector level within their portfolio.”

Narayan Gangadhar

opening

“We are confident of the robustness of our business model and strongly believe that our engines will facilitate us to garner superior growth from target markets.”

Vineet Agrawal

opening

“The full year incremental cost of the incremental stock grants will be about Rs.”

Vineet Agrawal

“I'll not be able to give you a guidance on that because we have some plans of new hires as well, but it's going to be in this ballpark.”

Narayan Gangadhar

“And as far as the SEBI and regulations are concerned, yes, we do expect more regulatory headwinds coming.”

Narayan Gangadhar

“So, I think it will be overall net-net good for everybody.”

Narayan Gangadhar

“And our business today, as Dinesh has, I think, always mentioned this in earlier calls, is that we aim to breakeven within 6 months.”

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Risks & concerns — 15 flagged

Pravin Bathe – Chief Legal and Compliance Officer; Subhash Menon – Chief Human Resources Officer; Bhavin Parekh – Head of Operations, Risk and Surveillance; Devender Kumar – Head of Online Revenue; SGA, our IR consultants.

— Hitul Gutka

All this despite a somber macro environment, which was dampened due to risk-off sentiment, firm commodity prices, geopolitical tensions and expectation of a global recession.

— Dinesh Thakkar

Economies across the world, including India, are facing inflationary pressure, which led to upfront loading of interest rates.

— Dinesh Thakkar

Depository income, which contributed 4% to the total gross income, registered a decline of approximately 17% quarter-on-quarter.

— Vineet Agrawal

This being the first quarter of the current financial year, it incorporates the impact of salary increments given to our employees.

— Vineet Agrawal

Our employee cost for the quarter also factors in the proportionate impact of the budgeted variable pay for the current financial year.

— Vineet Agrawal

Now there's also a macro pressure and the prices are getting jacked up largely because the acquisition funnel is coming under pressure because when you look at venture-backed players who are also pumping in money to acquire market share, even they have come under pressure because the venture funding is getting squeezed out.

— Narayan Gangadhar

At a macro level, when you look at how we look at the MTF business, overall, the controls that have been put in place, overall the risk rules that we have put in place to manage risk associated with that, none of those have thrown off any red flags.

— Narayan Gangadhar

The underlying securities are intact, and our robust risk management systems take care of the mark- to-market requirements.

— Vineet Agrawal

So, we don't see any kind of concern there.

— Vineet Agrawal

Firstly, team congratulations on good numbers in this rather difficult time period.

— Aejas Lakhani

Now as more and more people come online, the regulators' main concern is to try and ensure that the right controls and the right rules are being enforced by every major corporation, whether it is us or any of the other large brokers.

— Narayan Gangadhar

One is the ARPU continues to decline for us.

— Nidhesh Jain

I think on a quarter-on- quarter basis, it continues to decline at 5%, 6%.

— Nidhesh Jain

So, why this ARPU continues to decline despite a bit of slowdown in the incremental customer acquisition?

— Nidhesh Jain

Q&A — 15 exchanges

So, sir, a couple of questions from my side. I mean, what is the targeted activation rate for the Super App given that currently we are at 30% activation rate. So, I mean compared to our old app and given that this new Super App has much more additional features, so what is our targeted rate on the activation? That is my first question. And second is on the admin expenses. Now given that we had a 16% dip in the customer additions on a sequential basis, so the OPEX should have seen some moderation given that marketing expenses are variable in nature. So, what was the marketing expense for the f

Narayan Gangadhar

Okay. So, let me take the first one, and I'll hand it over to Vineet to give you the fine details, okay. So, see, for your first question was around the activation for the new Super-App. Now, as a whole, we are building this platform for new customers for a longer period of time. We're looking at customers with an overall life time value of more than 5 to 10 years. And what we are building is currently, we from our overall wealth management portfolio of which equity trading is one part of it, we are targeting a net activation rate of around 50%. Now we don't really go and build to that number,

Congratulations on a decent set of numbers, given the tough market conditions that we had seen in Q1. A few questions from my end. Firstly, could you give some numbers around the number of contracts traded on the derivatives side for us in Q1 of this year and sequentially also, what kind of growth you would have seen?

Narayan Gangadhar

Mr. Jain, can you just repeat your question one more time? You want to know the number of contracts on the derivative side? Yes, number of contracts traded. Number of contracts traded. I don't know if we can divulge that information. Let me hand it over to our team. Vineet, does anyone who has that data? In the F&O segment, we had about 153 million orders executed on our platform for the quarter. This was about 6 million higher than the previous quarter at 147 million. I'll possibly take that offline as well. Secondly, Narayan or Dineshbhai, this question is for both of you guys. We have seen,

My question was actually related to your app downloads, which is around 25 million. And when I look at your client base, that is around 10 million client base. So, just wanted to understand the journey from an app download, what you actually classify the app download, would it have repeat customers who’ve deleted every download of the app? And the conversion rate to actually then becoming clients, what is the conversion rate? Has it improved? And what is Angel doing to improve that? If you could just talk a little bit on that.

Narayan Gangadhar

Yes. So, see, as in any kind of a digital activation system, we have a full funnel for optimizing the lead all the way from the time the lead comes into the system until the time the install actually takes place, right? And this entire funnel has obviously a lot of gaps. And some of these gaps are not just in the control of the product or the tech or even the business teams. There are factors that are beyond our control. For example, the targeting that Google gives is often not correct, right? And then sometimes what happens is that the person, as you rightly said, there's a repeat install cas

Firstly, team congratulations on good numbers in this rather difficult time period. So, my first question is to Narayan, Bhavin and Dinesh Bhai, if you would like to sort of chip in here. So, you mentioned, Bhavin, about the fact that the regulator has sat to the top brokers at NSE and discussed some of the queries. But just 2 things here. I'm trying to still corroborate. So, you mentioned that incoming clients, you take financial documents and the controls embedded are better. And you also mentioned in the opening remarks that most of these new cohort of clients are from Tier-2, Tier-3 towns.

Narayan Gangadhar

Yes. There are 2, 3 questions mixed in your questions. Why don't I first hand it over to Bhavin, let him answer the questions around controls of the F&O. Then I'll give some perspective on the broader picture. So, Bhavin, go ahead. Yes. So, Mr. Lakhani, basically, when I mentioned about the NSE meeting, it was just about NSE was trying to understand how the on-boarding is happening at the digital side of the broking system. And anyway, there are very well laid down regulations by SEBI and exchanges that what documents are required. These are not new. These documents are required since almost 2

With the current capacity, how many clients can we onboard? Currently, we have about roughly 1 crore clients. So, how many more we can onboard and with the CapEx for the next 1 year?

Narayan Gangadhar

Yes. Hi, Mr. Ashwani. So, the answer is we can onboard as many as we get. See, we have built the system for scale. And from a regulatory standpoint, from a back-end standpoint, we are definitely ready for scale. Now from a front end and system standpoint, we have been built for handling a peak, which is 2x to 3x the traffic that we can handle. I want to just have Mr. Jyoti, who is our CTO, just address this point on how we are thinking about scaling the system. Jyoti, can you please share your perspective here? Jyotiswarup Raiturkar: As Narayan confirmed, right, basically, our system is scalab

Two questions. One is the ARPU continues to decline for us. I think on a quarter-on- quarter basis, it continues to decline at 5%, 6%. And in case the customer acquisition also slows down, then probably our broking revenue will start to see moderation. So, why this ARPU continues to decline despite a bit of slowdown in the incremental customer acquisition? That is first question. Secondly, I think our app rating has also marginally reduced in this quarter versus what it was last quarter. So, any insights on that, why that has happened? These are the 2 questions, sir.

Narayan Gangadhar

Yes. So, I'll take the first one. See with the case of ARPU now, there are 2 parameters that are at play, right? First is there are newer and newer customers entering the market. 90% of everybody who is joining the market is a first-time trader, okay? And this ratio was not 90% up until 3 years or 4 years back. Broking suddenly has become a commodity play. It has become a commodity mass market product because there is no other vehicle available today in India to actually grow your wealth. You're not going to go to the bank. They're only giving 3% or 4%. You have to enter equities to build weal

So, my question is related to one of the questions you answered in the past. So, basically, exchange was related to the F&O on-boarding. So, one thing with NSE meeting was called was because we wanted only to see that whether the checks and balances are kept in place. But what will be the actual checks and balances where a customer has been rejected to enter into or is not on-boarded on our derivative platform?

Narayan Gangadhar

Bhavin, can you answer this question? Anything you want to share here? See, basically, there are very well rules which have been laid down on boarding a customer, what documents are required and how it has to be there. So, practically, whatever exchange and SEBI have prescribed over a period of time, there are various other innovations that we have actually created internally also to ensure that the right set of customers actually get on-boarded. So, one of the things what actually regulators do is also they get into a consultative approach, okay? And this is what actually they have been doing

Sir, on your expenses side, if you help us understand how much is sort of a fixed cost and how much is related to the amount of business that we are doing. So, that is question #1.

Narayan Gangadhar

Yes. Vineet, could you please, take this? Sarvesh, if you see our P&L, the finance cost, the fees and commission expense, these are all 100% variable. And the employee cost is also partially variable because a lot of it is linked to the performance. The sales and marketing cost is variable. So, a large part of our cost is variable and it depends on what the volumes are or how the market, the turnover or the number of orders happen. So, what percentage of other expenses and employee expense broadly would be fixed? We can easily moderate our expenses by about 30%, 35% without doing much share ef

I have 1 question. So, I appreciate the point that you made that because we keep adding customers where the lifetime value gets realized later on over the course of the year as and when the mix increases in favor of higher vintage clients, that is the time where ARPU will show better outcomes. But I was just analyzing this quarter. So, this quarter after long we have seen a slowdown in total clients. So, over the last few quarters, sequentially, total clients were growing at between 20% to 30%. This quarter, it's grown at 13%. But despite that, we have not seen any improvement in ARPU. So, ide

Narayan Gangadhar

Yes. See, it's weak. So, weak is a statement which has to be taken in context of the broader market also, right? If you look at how the indices have performed and the customer sentiment and not just across investing. If you look at just customer sentiment today in India, right, it is currently at, I wouldn't say it was depressed, but it is cautionary. There are lots of sectors where people are deferring investments. People who wanted to buy homes are currently waiting. Loan volumes are down. So, this is not a micro trend which is only specific to retail or client investing. It is happening acr

So, what would be yield differential between normal clients or flat fee clients and associated partner clients?

Narayan Gangadhar

Sorry, what is the yield differential. Can you please explain that? I didn't think I got it. Ketan can really answer this. So, like we are into flat broking plan. I think Ketan will be the right person to answer it. Yes. Ketan, please take it. So, we have a flat broking plan for direct clients as well as AP, right? So, the rate of brokerage is same for all the customers, whether he comes through AP or whether he comes through a direct channel. So, as such there is no difference in terms of yield.

So, I wanted to know your thoughts on the account aggregator framework. Currently, it's in the nascent stages and predominantly banks are participating in that. But from your interactions with regulators, when can broking entities be a part of this account aggregator framework? And how is it likely to change the landscape?

Narayan Gangadhar

Yes. So, currently, obviously, as you rightly said, very early days. In fact, the product itself, if you look at their APIs, it's a fully electronic product, right? And it's in a very nascent stages, right? But that said, the banks have just started to embrace it. Now what is in it for us is that for us, what this gives us, is this gives us a very good 360 view into the fidelity of the clients we are acquiring. Based on the information and whether it is information that we get from their banks or from their assets, which are held in other sources, right, this account aggregation framework can

So, my question is regarding the share of top 5 digital brokers. As it is seen in the presentation, it has fallen to 69% compared to the last fiscal which was at 73%. So, any particular reason or your view on that?

Narayan Gangadhar

So, if you look at the top 5 players as an aggregate over the last 3 years, 4 years, the trend is that it's growing faster than what you see in other siloed broking environments, like bank based broking. So, maybe one quarter here or there, the numbers might be off. But at a macro level, the writing is already on the wall. When you look at the number of clients we are acquiring digitally and if you look at us and you look at some of our other competitors, I think it's fair to say that these 3 or 4 brokers will have the giant share of new customer acquisition over the coming months. And I also

So, activation rate has declined close to 130 bps Q-o-Q. I believe partly because of moderating the new client addition. In current environment, with more you can say in moderation in the new client addition. Directionally, the activation rate will further decline, you can say, and go back to the earlier level? Or what is the view you are having?

Narayan Gangadhar

No, I don't see it declining to the previous levels. Given that the sentiment in the market is also bearish at this point, as I mentioned, newer customers coming to the market. See, newer customers today, the biggest challenge today is educating the new customer. It's not about the trading volume or any of those things. Those things will continue to grow only. The big issue here for every company right now, tech companies, fintech companies, the #1 challenge is newer customers are coming online, how do we educate them. And the product has become very, very complex. Now if you look at any finte

Just wanted to check with you if you could give us a timeline for the rollout of Super App on the Android platform. And then also the wealth management products over it, right? If you can, would the wealth management products, would follow the same strategy first on the iOS platform and the web based and then followed by Android?

Narayan Gangadhar

Right. Yes. Thank you, Prateek. Great question. See, our plan is, as we discussed in the last earnings call, this quarter, we will be finishing the iOS deployment. We are far ahead of schedule there. We want to start the Android deployment this quarter. My sense is it will take 1 quarter because there's about 8-point-something million clients. It's going to be one of India's largest migrations. And also, Prateek, one thing of interest here, is unlike other competitors, we have not built 2 applications. We just built one actual Super App, which will be upgraded in place. So, it is the first tim

Thank you, everyone, for joining us today on this earnings call. Unlike developed economies, where equity penetration is high, India's growth opportunity remains insulated due to high under penetration. Growth in Demat accounts reflects rising equity adoption of India. The rise of retail investors is witnessed from their growing participation over the last couple of years. They have demonstrated tremendous strength as they withstand market volatility, coupled with aggressive FII selling. As the fundraising activity resumes and more companies get listed, investing opportunity will only expand f

Management

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Speaking time

Narayan Gangadhar

Moderator

Vineet Agrawal

Prayesh Jain

Dinesh Thakkar

Bhavin Parekh

Sarvesh Gupta

Franklin Moraes

Devender Kumar

Prateek Poddar

Opening remarks

Hitul Gutka

Good morning, and welcome, everyone. Thank you for joining us today to discuss Angel One's Q1 FY23 Financial and Business Performance. The recording of today's call and the transcript will be uploaded on our website in the Investor Relations section. The Financial Results, Investor Presentation and Press Release are also available on the website. For today's earnings call, Angel is represented by its leadership team. We have with us today Mr. Dinesh Thakkar – Chairman and Managing Director; Mr. Narayan Gangadhar – Chief Executive Officer; Vineet Agrawal – Chief Financial Officer; Dinesh Radhakrishnan – Chief Product and Technology Officer; Jyotiswarup Raiturkar – Chief Technology Officer; Ankit Rastogi – Chief Product Officer; Prabhakar Tiwari – Chief Growth Officer; Ketan Shah – Chief Strategy Officer; Dr. Pravin Bathe – Chief Legal and Compliance Officer; Subhash Menon – Chief Human Resources Officer; Bhavin Parekh – Head of Operations, Risk and Surveillance; Devender Kumar – Head of

Dinesh Thakkar

Thank you, Hitul. Good morning, everyone. After a very strong FY22, the broking industry started the current year on a positive note with 6.9 million new demat accounts opened and cash and F&O ADTO for the industry witnessing a sequential growth of 10% in Q1 FY23. All this despite a somber macro environment, which was dampened due to risk-off sentiment, firm commodity prices, geopolitical tensions and expectation of a global recession. Economies across the world, including India, are facing inflationary pressure, which led to upfront loading of interest rates. As the supply side situation improves, inflation should come down just leading to normalization of interest rates in the future. A recent report released by RBI highlights that, India, is today, better positioned to mitigate external risks and global spillovers as compared to the taper tantrum period. These global headwinds have led to ephemeral correction in capital markets. During the ongoing correction, India continued to witn

Narayan Gangadhar

Thank you, Dinesh. Thank you all for joining us today. I will walk you through some of our recent developments and our operational performance. The strategic pillar on which Angel has been built is client-centricity and addressing their problems by using technology. With this intent in mind, we commenced our journey to develop our Super App last year. I'm delighted to inform that we have successfully rolled out the first phase of our Super App to limited clients on the iOS, which is the Apple, and the web platforms. The Super App has been architected and built on 5 fundamental principles: Simplicity, Transparency, Availability, Reliability and Swiftness. The cutting-edge technologies used to build the app will empower and enhance client experience. The tech innovation ranges from crafting dynamic native experiences on mobile apps to creating consumer cohorts and assigning curated journeys. The new app is packed with features and upgrades to the existing ones, like a new homepage, which

Vineet Agrawal

Thank you, Narayan. Good morning, everyone. I will take you through the financial snapshot for the quarter gone by. As mentioned by Dineshbhai and Narayan earlier, Angel continued to deliver a strong performance on all operating parameters even in a challenging macro environment. Coming straight to our Q1 FY2023 financial performance, our gross revenues remained flat at Rs. 6.9 billion. Key drivers of our gross revenues were: Gross broking revenue, which remained stable at Rs. 4.7 billion. This accounted for approximately 69% of our gross revenues. Interest income, which includes interest on our client funding book and interest earned from deposits with exchanges, grew by approximately 14% quarter-on-quarter to Rs. 1.2 billion. This accounted for about 18% of our gross revenues. The ancillary transaction income, which is linked to the turnover of our clients, accounted for nearly 8% of our total gross revenues, came in at Rs. 543 million. Depository income, which contributed 4% to the

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