Angel One - SEBI Clamps Down On Frothy Revenue Pools: HDFC Securities

HDFC Securities Institutional Equities

In its efforts to clamp down on the rising irrationality in option volumes (F&O), the Securities and Exchange Board of India has directed exchanges and market infrastructure institutions to discontinue the practice of charging turnover-linked slab-wise fee structures, and levy uniform transaction charges instead.

While exchanges currently levy regressive slab-wise fees (higher the turnover, lower the fees), brokers usually charge their customers at the highest prescribed slab rate, resulting in excess profit residing with brokers, especially discount brokers, which is accounted as “ancillary transaction income”.

Our analysis of Angel One Ltd.’s disclosures suggests that this revenue stream contributes ~8% to revenues and a material 20% to pre-tax profits, which is likely to be vulnerable to the SEBI’s “True to Label” mandate that calls for a complete pass-through from customers to MIIs.

We cut our profit before tax estimates by 11% and 23% for FY25E and FY26E to factor in the potential first-order impact; we also flag the potential second-order adverse impact on working capital and funding costs.

We Angel One at 20 times March-26 AEPS for its potent acquisition funnel and its relatively secular business model. We maintain Add with a target price of Rs 2,750 (earlier Rs 3,500).

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