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Groww Shares Rally 13% as Jefferies Sees a Robinhood Playbook at Work
Shares of Billionbrains Garage Ventures, the parent company of Groww, surged by 13% on Friday, reaching Rs 162.65 on the BSE. This spike followed Jefferies initiating coverage with a ‘Buy’ rating. The brokerage argues that India’s largest retail brokerage by active clients is adopting a Robinhood-style strategy, which could yield a 35% compound annual growth in earnings over the next three years due to scaling new products and expanding margins.
Jefferies Sets a Price Target for Groww
– Price Target: Jefferies has set a price target of Rs 180 for Groww. This represents a 26% upside from the stock’s previous close and values the company at 33 times its estimated earnings for December 2027.
– Discount to Robinhood: The valuation multiple is approximately a 15% discount compared to US-based Robinhood, which Jefferies cites as a model for Groww’s strategy and execution.
Groww’s Surge in Market Leadership
– Rapid Rise: Groww has quickly established itself as the top broker in India by active clients, capturing a remarkable 26% market share since launching its brokerage services in FY21, compared to 16% for its closest competitor.
– Key Factors: The brokerage’s rise can be attributed to its strong customer acquisition through a mutual fund-led approach, user-friendly interface, and effective word-of-mouth marketing.
Sustaining High Growth in the Broker Market
Jefferies highlights multiple strategies that Groww can leverage to maintain its robust growth trajectory, including:
– Core Business Expansion: Ongoing gains in its fundamental broking business.
– New Product Scaling: Rapid introduction of new offerings.
– Margin Expansion: A projected recovery in profit margins after a temporary dip.
Product Velocity Mirrors Robinhood
At the core of Jefferies’ optimistic outlook is Groww’s extensive product range, which they liken to Robinhood’s model of rapid product introduction. They predict that Groww’s revenues will grow at a 29% compound annual rate over FY26–28, driven by:
– New Offerings: Introduction of margin trading, wealth management services, commodities, bonds, and securities-backed loans.
Groww’s Wealth Management and Margin Trading Potential
Jefferies estimates:
– Wealth Management Valuation: Groww’s wealth management segment could be valued at Rs 38 billion, assuming a 30% compound annual growth rate and a better cost-to-income ratio improved to 67% by FY30, based on a 10% penetration of wealth products among clients.
– EBITDA Margin: The adjusted EBITDA margin is projected to rise from 36% in FY23 to 59% in FY25, eclipsing both Robinhood and domestic competitor Angel One. Although margins might contract in FY26 due to lower broking earnings and initial impacts from the wealth business, Jefferies anticipates a recovery in margins as the company gains operational leverage.
Valuation Gaps and Associated Risks
Despite its promising growth prospects, Groww currently trades at about 27 times its December 2027 earnings estimate, representing a roughly 30% discount to Robinhood. Jefferies suggests this valuation gap could close as both margin trading and wealth management start to scale up.
However, there are notable risks, including:
– Regulatory Challenges: Compliance with evolving financial regulations.
– Market Competition: Increased competition from existing and new players in the retail brokerage space.
– Cybersecurity Threats: Potential cybersecurity risks impacting clients and operational integrity.
In conclusion, Jefferies posits that Groww’s ability to effectively execute its strategy in new business areas will be crucial for any future re-rating of its shares.
(Disclaimer: The views and opinions expressed in this article are those of the experts and do not necessarily represent the views of the Economic Times.)