Is Angel One a value trap?

India’s third-largest discount broker just dropped its Q4FY25 results, and they’re not pretty. Broking revenue slipped 23% quarter-on-quarter. Net profit hit a three-year low. And the number of orders? Down nearly 25%.

Investors aren’t exactly thrilled either. While Angel One’s stock tripled between January 2022 and January 2025, it’s down 22% YTD. That’s a stark contrast to the NIFTY Financial Services index, which is up 8% in the same period.

So, what’s gone wrong for Angel One?

The rise before the fall

To understand Angel One’s current predicament, we need to rewind a bit.

Between FY20 and FY24, Angel One underwent a dramatic transformation. The company shed its full-service broker skin — goodbye research reports, relationship managers, and phone calls — and embraced the discount broking model pioneered by Zerodha. Just an app, an order button, and push notifications.

This coincided perfectly with India’s retail investing boom. From FY20 to FY24, the total demat accounts grew more than 300% from 5 crore in FY20 to 18.5 crore in FY24. New investors were flooding in, and discount brokers feasted. By 2024, the trio of Groww, Zerodha, and Angel One controlled about 65% of the market.

For Angel One, the model was beautifully simple:

Charge Rs 20 per trade (or less)

Lend against those trades at high interest rates

Watch the money roll in

When markets were roaring, that was more than enough. Angel One processed 489 million orders in Q2 FY25.

The regulatory reality check

But in October 2024, SEBI decided enough was enough. Worried about the casino-like environment developing in F&O markets (where studies showed over 90% of retail traders were losing money), the regulator implemented a series of changes.

SEBI increased minimum contract sizes, reduced weekly expiries, tightened margin requirements, and implemented stricter position limits.

For Angel One, which derived approximately 80% of its broking revenue from F&O trading, this was nothing short of an existential threat.

The impact was almost immediate. From a peak daily quarterly volume of 489 million in July 2024, Angel One was down to 227 million orders by March 2025, a staggering 33% drop.

This is particularly problematic when your entire business model revolves around charging Rs 20 or less per trade and lending against those trades at high interest rates. More than 90% of Angel One’s revenue comes from just those two levers. If people stop trading, the machine sputters.

The numbers don’t lie

Angel One just released its results for the quarter ending March 2025. The brokerage firm’s profit crashed by 48.7% compared to the same period last year, landing at Rs 174.5 crore.

The damage wasn’t just year-on-year. Compared to the previous quarter (Q3FY25), profits tumbled 38% to Rs 281.5 crore.

Total income also took a hit, falling 16% quarter-on-quarter to Rs 1,057.8 crore. And the company’s EBDAT (Earnings Before Depreciation, Amortisation, and Tax) dropped by 36% to Rs 264.3 crore.

So what’s happening here?

The F&O effect

The main culprit? New regulations in the Futures & Options (F&O) segment.

These regulations have dramatically reduced F&O trading activity – Angel One’s bread and butter. The company saw F&O orders plummet 26% from the previous quarter, while cash segment orders fell 16%.

For a discount broker that made its name by offering low-cost F&O trading, this regulatory change hit where it hurts most.

Client growth: A mixed picture

Interestingly, Angel One’s user base continues to grow. Its total client base increased by 39.5% year-on-year to a massive 3.1 crore clients. The company now holds 16.1% of all demat accounts in India, a jump of 143 basis points.

Its NSE active client base also grew 24% year-on-year to Rs 76 lakh, maintaining Angel One’s position as the third-largest broker by active clients.

But there’s a catch. New client acquisition slowed dramatically, with gross client addition falling 43.9% year-on-year to Rs 16 lakh in Q4FY25.

More than just F&O regulations

It’s worth noting that SEBI’s F&O regulations weren’t the only challenge facing Angel One. In July 2024, SEBI’s ‘True-to-Label’ framework standardised exchange charges and eliminated additional fees that brokers previously charged under various headers. For Angel One, this wiped out approximately 8% of its revenue overnight.

The company also faced elevated costs during the quarter. While total operating expenses were flat sequentially, this masked some important trends. Employee costs declined 21% sequentially to Rs 1.9 billion, 22% below estimates, owing to the reversal of variable pay to employees of Rs 641 million. Excluding this one-off impact, employee expenses would have been 5% above analyst estimates.

Meanwhile, administrative and other expenses grew 14% QoQ to Rs 3.8 billion, 21% above estimates, despite a decline in client additions. This was attributed to two factors: the company’s aggressive client acquisition strategy in the current volatile market, and continued investments in technology and new business ventures (which caused a 1.8% hit to the operating margin in Q4FY25). The IPL-related expenses of Rs 344 million were in line with expectations.

The sequential cost increases pushed the cost-to-income ratio to 68.2% in Q4FY25, up from 58% in the previous quarter. This is a significant deterioration for a company that had been known for its operational efficiency.

From one-trick pony to financial supermarket

When your primary revenue engine starts sputtering, you need new ones. Angel One’s leadership recognised this reality and began charting a new course even before the full impact of SEBI’s regulations hit their financial statements.

Their strategy? Transform from a discount broker dependent on F&O trading into a comprehensive financial services platform. This pivot involves several key initiatives: launching their own asset management business with passive funds and ETFs, developing wealth management services targeting high-net-worth individuals, distributing credit products in partnership with NBFCs, and adding insurance products to their platform.

The company has already rolled out its first lineup of financial products, including a total market index fund, a matching ETF, and a one-day rate liquid ETF. You can now buy the whole market, or a super-safe slice of it, without leaving the app.

To make sure everyone knows about these changes, Angel One has opened its wallet — wide. The company signed a four-year title sponsorship deal with the Indian Premier League, hoping that somewhere between wickets and whistles, you’ll think to open the app and maybe try an index fund. Its ad spend now accounts for 24% of revenue, dramatically higher than Groww’s 14%, Dhan’s 7%, and Zerodha’s negligible 0.2%.

But the transition from a transaction-based business to a value-added services model isn’t simple, especially when your customer base consists largely of price-sensitive retail traders who were attracted by the Rs 20 flat fee, not comprehensive financial planning.

The economics of transformation

Building an asset management business in India is a long, capital-intensive journey. Recent entrants like Zerodha Mutual Fund and Helios Mutual Fund, despite launching in 2023, have only gathered Rs 4,000 crore and Rs 3,000 crore in assets under management (AUM), respectively. Industry experts suggest a fund house needs at least Rs 50,000 crore in AUM to generate meaningful profits of around Rs 100 crore. With expense ratios capped at 0.2-0.3% for passive funds, scale is essential.

Angel One’s current AUM numbers are humble by industry standards. As of March 2025, the company had just Rs 74 crore in asset under management and Rs 3,790 crore in wealth management — a drop in the ocean compared to established players like Kotak Wealth Management with Rs 8.9 lakh crore under management.

From January 2020 to March 2025, India added 345 active mutual fund schemes with Rs 3.1 lakh crore in AUM, growing to Rs 5.6 lakh crore. In the same period, 335 passive funds grew from Rs 43,000 crore to Rs 2.1 lakh crore. While passive investing is growing faster, active funds still dominate the landscape, and retail investors in India still overwhelmingly favour them.

The push into asset and wealth management resulted in a Rs 63-64 crore burn in FY25, reducing their EBITDA margin by 1.8 percentage points, according to a Kotak Securities report.

The customer conundrum

Beyond the headline numbers, there’s another fundamental challenge for Angel One: the disconnect between their existing customer base and their new target market. Are the thrill-seeking F&O traders on their platform interested in boring index funds and insurance policies?

The person YOLO-ing into F&O every Friday is probably different from someone who’s calmly researching debt funds for retirement. Building a super app sounds great in pitch decks, but in practice, customer overlap is thinner than expected.

What Angel One really needs are power traders: the high-frequency, high-ticket-size kind who keep trading through cycles and don’t vanish at the first sign of volatility. These traders are loyal, noisy, and, most importantly, profitable.

You can see the difference in the numbers. Platforms like Zerodha, Dhan, and Fyers, which cater to power users, clock average revenue per user (ARPU) in the Rs 12,000-13,000 range. Angel One’s ARPU sits at around Rs 6,000, while market leader Groww’s ARPU is even lower at about Rs 2,000.

Moving into wealth management also means serving a different crowd. Not the twenty-something trying options trading on their lunch break, but high-net-worth folks who want quarterly reviews, tax optimisation, portfolio commentary, and someone to call when the Nifty drops 200 points.

Silver linings in the storm clouds

Despite these challenges, Angel One retains some significant advantages. The company maintained its 15% share of NSE active clients as of Q4FY25. Together with Zerodha (16%) and Groww (26%), the trio controls around 65% of the market. This market share stability is impressive given the turbulence in the industry.

Gross client acquisition fell 22% to 1.6 million in Q4FY25, but the active client base remained largely stable at 7.6 million, a saving grace amid the weak quarter. This stability is notable, given concerns of client attrition following the company’s introduction of a brokerage fee of Rs 20 or 0.1% of the order value (whichever is lower) for cash market transactions, effective from November 2024.

Market share trends were mixed. While the company gained ground in the cash segment — rising slightly quarter-on-quarter to 17.5% — it lost 40 basis points (0.4%) in the F&O segment, where its share fell to 21.4%. During the earnings call, the management attributed this decline to their predominantly retail-focused client base. Retail traders have been disproportionately impacted by the new SEBI regulations, unlike institutional players who are better positioned to meet the higher margin requirements.

There are some positive operational signs as well. The revenue curve picked up in March 2025, and the company reported seeing a similar trajectory in April 2025. The management expects the impact of F&O regulations to gradually normalise, which would lead to an operating margin of 40-45% in Q4FY26.

The investor’s dilemma

With Angel One’s stock down 22% YTD and trading below its five-year median P/E ratio of 19 times, the question for investors is whether this represents a buying opportunity or a value trap.

Analysts have been adjusting their expectations downward. EPS estimates have been cut by 15% for FY26 and 7% for FY27 by some analysts, factoring in a slower margin-trading facility (MTF) growth trajectory and elevated cost structure due to higher client acquisition costs and continued investments in new businesses. Consequently, some analysts have revised their target price to Rs 2,800 (based on 18x FY27E EPS).

While the company has the lever of corrective pricing, among others, to revive revenue growth and protect profitability, sustained recovery in market activity can help the company achieve the 40-45% operating margin guidance. New businesses such as the distribution of loans, fixed deposits, wealth management, and AMC are likely to gain traction over the medium term.

The answer for investors depends largely on your view of management’s ability to execute this challenging pivot, as well as your assessment of how the regulatory environment might evolve.

For long-term investors who believe in the structural growth story of Indian retail financial services, Angel One’s current valuation might be attractive, assuming you have the patience to wait for the transformation to bear fruit. For those seeking more immediate returns, the potentially uncertain path to recovery suggests caution may be warranted.

Note: We have relied on data from http://www.Screener.in throughout this article. Only in cases where the data was not available have we used an alternate, but widely used and accepted source of information.

Sonia Boolchandani is a financial content writer with over four years of experience. She has written articles for prominent firms, including 5Paisa, Vested Finance, and Finology.

Disclosure: The writer and her dependents hold the stocks discussed in this article.

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