Angel One shares at Rs 2,700? JM Financial initiates coverage with 'Buy ', says this

JM Financial has started coverage on Angel One with a 'Buy' rating and a target price of Rs 2,700. This valuation is based on 19 times the estimated earnings per share (EPS) for the financial year 2027, which is projected to be Rs 141. The broking firm has over 3.2 crore clients, with more than 90 lakh actively trading on the National Stock Exchange (NSE).

Starting its journey in 1996 as an offline broker, Angel One transitioned to online discount broking in FY20, resulting in exponential growth in client base and revenues. Over the period from FY20 to FY24, the company's client base grew at a compound annual growth rate (CAGR) of 68%, net revenue at 80% CAGR, and profit after tax (PAT) at 90% CAGR.

JM Financial notes that "while new client acquisition and revenue have been volatile, vintage clients have provided steady revenue." In FY25, 39% of Angel One's net revenue was derived from clients acquired during FY24 and FY25. This suggests a shift towards generating recurring revenue from existing clients.

As Angel One shifts focus to adjacent business lines like wealth management, asset management, loan origination, and insurance, JM Financial highlights that these expansions are in response to evolving regulations. Despite regulatory changes affecting the derivatives segment, Angel One has managed to maintain a stable PAT from FY24 to FY25. This adaptability underscores the firm's resilience amidst industry changes.

According to JM Financial, "As the company is incrementally farming its existing client base, JM Financial expects revenue to be more recurring, providing a steady runway while it resumes its hunt to return to previous levels as the cost of acquisition normalises." This indicates a strategic emphasis on deepening relationships with current clients to sustain revenue growth.

However, the report anticipates a temporary decline in profitability. "As the company was cautious on client acquisition in FY25 and 1HFY26 and is investing in adjacent businesses, we expect PAT to decline by 15% in FY26 over FY25, before it recovers from FY27 onwards," the report suggested. This forecast is aligned with the company's strategic investments and adjustments to its acquisition approach.

Angel One's ability to capitalise on a broad range of financial products and its strong operating leverage are central to its growth strategy. The firm's platform-centric business model leverages technology to scale offerings across a wide customer base, contributing significantly to revenue growth once client acquisition costs are recouped.

Regulatory developments have favoured retail investor participation. The introduction of peak margin norms, margin segregation, and client fund payouts have made the market more accessible for individual traders. These changes have resulted in significant growth in active traders within the derivatives segment, increasing from 7 lakh in FY19 to 96 lakh by FY24.

Overall, Angel One's strategic pivot towards digital platforms, coupled with its robust growth in existing and new service lines, positions it as a strong player in the retail broking market. JM Financial's coverage underscores the company's resilience and potential for long-term growth, despite anticipated short-term challenges.