Buoyant Stocks, More Clients Failed To Cushion Brokers In Q1
India’s listed brokers’ earnings fell sequentially in the first quarter as fewer investors traded during the deadly second wave of the Covid-19 pandemic.
“The highly virulent variant of the virus followed by the imposition of lockdowns in large states, slow pace of immunisation in India and growth uncertainty has raised concerns among investors,” the NSE Market Pulse report said. While participation of institutional investors dropped in April and May, retail trading activity declined in June, it said.
The aggregate net profit after tax of the five listed brokerages—5Paisa Capital Ltd., IIFL Securities Ltd., Angel Broking Ltd., ICICI Securities Ltd. and Motilal Oswal Financial Services Ltd.—fell 24.3% sequentially in the April-June period, while total income rose 1.8%, according to data computed from their investor presentations. On an annual basis, cumulative income and profit jumped 46.4% and 61.5%, respectively.
That came even as the Sensex and Nifty 50 gained 6% and 7% during the quarter. The rally has been aided by surplus liquidity. A rising stock market drove client addition.
The brokers expanded their client base as low interest rates on fixed deposits and small saving schemes, and rise in financial savings, according to ICICI Securities, prompted people to consider equities. Digitisation and a spike in stock trading via mobile phone apps, too, helped.
The five brokerages together added 22.32 lakh clients in the first quarter against 18.37 lakh in the preceding three months, according to data computed from their investor presentations.
Here’s how the five brokerages fared in the April-June period of FY22...
Motilal Oswal Financial Services
The broking and distribution business, according to its first-quarter presentation, benefitted from industry consolidation.
The asset management segment was supported by an increased penetration in banking channels and rising digital contribution in mutual funds sales.
The wealth management business was helped by a focus on deepening client relationships and increased client-level engagement.
Incremental focus on southern and northern markets supported the home loan segment.
The company acquired 2.15 lakh clients in Q1 FY22, 4.8% lower than the preceding three months. Total retail clients stood at 21.9 lakh at the end of the quarter ended June.
Its average daily turnover stood at Rs 57,900 crore, a jump of 104% year-on-year but a 3.2% fall sequentially.
Strong momentum led by favourable volume mix (more in favour of high-yielding cash delivery) supported broking revenue in Q1 FY22.
The company acquired 12 lakh clients in Q1 FY22, a growth of 28% sequentially. Its total client base stood at 53 lakh as of June.
The average daily turnover rose 21% over the preceding three months to Rs 4.5 lakh crore.
Despite a 12% sequential increase in total expense, the company’s Ebitda margin remained stable at 48.8%.
The company, according to its Q1 presentation, has augmented investments in mobile platforms, artificial intelligence, machine learning capabilities and newer technologies. It’s leveraging technology to penetrate new customers in tier 2, 3 cities.
“High share of client additions from tier 3, 4 cities (93% mix in Q1 FY22), continued growth in the number of trades (14% QoQ and 93% YoY), low median age of clients, 1.26 crore app downloads, and data-science driven approach to micro-target many segments of diverse audience are noteworthy business parameters,” ICICI Securities said in a report, expecting PAT to grow at 22% annualised rate between FY21 and FY23.
ICICI Securities maintains a ‘buy’ rating on Angel Broking with a target price of Rs 1,060.
It acquired 3.89 lakh new clients in Q1 FY22, a growth of 9.9% sequentially. Total active clients as of June were at 21.9 lakh.
The average daily turnover rose 6.7% over January-March and 25.7% year-on-year to Rs 24.7 lakh crore.
Its brokerage revenue grew 11% over the year earlier but remained flat sequentially. Distribution revenue jumped 51% on an annual basis, while it declined 15% over January-March. A growth in MF assets under management and higher yield in life insurance distribution cushioned.
“The overall pace of client acquisitions, aided by newer sourcing tie-ups and product propositions should support revenue. We expect ICICI Securities to deliver 45-54% return on equity over FY22-24,” IIFL Securities said in a report, as it maintained a ‘buy’ rating with a price target of Rs 890 apiece.
Total expenses jumped 48% year-on-year and 10% sequentially due to an increase in headcount, salary hikes and marketing and technology spending.
The company acquired 1.5 lakh clients during the first quarter, a rise of 64% over the preceding three months. The average daily turnover increased 19.5% over January-March to Rs 52,710 crore.
Focus on client acquisition, technology upgradation, new product additions (through tie-ups with ‘Safegold’), shift to stability in cyclical business through building of AUM-led model, and anticipated exit from real estate investment are key triggers for future stock price performance, ICICI Direct said in a report. ICICI Direct, however, downgraded the rating to ‘hold’ from ‘buy’, with a price target of Rs 115.
The company acquired 2.78 lakh clients during the first quarter, an increase of 34% sequentially. Total client base stood at 16.31 lakh.
The average daily turnover rose 9.1% over the preceding quarter and 107% year-on-year to Rs 57,730 crore.
Focus on aggressive client accretion, improvement in technology and branding, operating leverage and tight cost control, revamping of web portal, launching of desktop site, plans for new products (NPS, PPF, and gold bonds) are the key triggers for the future stock performance, ICICI Direct said in a separate report, maintaining its ‘buy’ rating with a target price of Rs 600 apiece.
(Standardised data on clients is not available across brokerages)