Initial analysis – 52.2% profit CAGR over last 5 years and a ROE track record of 44.1 % over 3 years, along with operating margin expansion > 1500 bps over past 5 years, EPS has increased from Rs. 11.4 in Mar 2019 to Rs. 106.68 in Mar 23
- Brokerage business transitioning from a Brick and Mortar model to an asset light model; tech platform. Launched a financial super app.
- Targeting Tier 2 and Tier 3 towns for growth, their user acquisition has been very high.
- Gives them lot of cross-selling optionalities.
- FnO penetration, financialization of assets etc., are the macros which will help them in the long-run.
- Business is scaling up without much capital requirement and thus manages to keep a 35% dividend pay-out..
Trading at a price-to-earnings ratio of 15x, the current valuation surpasses the 10.2x benchmark set by the discount broker Zerodha following their FY23 result announcement. But is in range with traditional brokers like icici securities.
Anticipate that the shift from a broking platform to a financial super app will uncover supplementary revenue avenues, with minimal customer acquisition expenses, primarily through cross-selling to the current customer base. The total addressable market (TAM) for the business also widens. These developments create the potential for a stock re-rating.
Took position on 09/08/23 – Schil pf @ Rs. 1735