ICICI Securities Ltd. share price target

11 September 2019 by deepening the partner network and enhancing the tie-up with ICICIB, 2) increasing wallet share of clients with a focus on ARPU, 3) providing a better engagement experience, 4) introducing digital agility, and 5) enhancing operational efficiency (i.e. reducing the C/I ratio). ISEC acquired 0.45m customers in FY20, largely similar to earlier years. While market share in terms of NSE-active clients improved 40bp YoY to 10% in FY20, the company is focused on increasing it further. ICICI Securities Over the past two years, ISEC has been focused on improving its digital capabilities and thus enhancing customer experience. The network of IFAs, sub-brokers, investment advisors (IAs), and accounts payables (APs) grew 32% YoY to 9,400+ in FY20, which further increased to 12,500+ in 1QFY21. As a result, the number of clients sourced through partnerships grew 70% YoY. ISEC launched a number of new propositions in the year.

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19 Securities ICICI May 2020 19 May 2020 ICICI Securities ISEC is focusing on generating higher average revenue per customer (ARPU) and customer acquisition, which should lead to superior overall volumes. Core to the ISEC strategy is ARPU (including distribution and lending revenues), and thus, cross-selling and innovative offerings are likely to be key initiatives in revenue generation. However, with trail commissions on net flows higher than those on the back book, yields improved to 66bp in 4QFY20. Commission yields are now stable/marginally improving and revenues should grow in line with AUM. In addition to providing an extra revenue stream, the distribution business also helps to reduce overall volatility of earnings stemming from the brokerage and investment banking segments. In addition to brokerage and distribution, other key revenue sources for ISEC include margin funding and investment banking.

While volumes continue to increase deteriorating mix, and increased competition is expected to keep yields down. Distribution revenues have bottomed out. ISEC is rapidly building loan assets which will drive earnings in the near term. All the above, along with new initiatives and cost control will drive earnings at FY20-22E CAGR of 17.9%. Our rating on ISEC remains a SELL, despite us raising target multiple to 18x (PEG=1), increasing our TP to Rs 435. Our TP implies a FY19-31E APAT CAGR of 17.3%. Risks: Uptick in equity markets coupled with increased retail participation. We attended ISECs sell side analyst day and were impressed by the strong client franchise, innovations and focus on adding value propositions (apart from pricing) for customers. While we appreciate the fundamental strength of ISECs business model, we believe valuations at FY21E/22E P/E of 23.5/20.8x are stretched. We rate ISEC a SELL with TP of Rs 435 (18x FY22E EPS).

While volumes increase deteriorating mix is expected to keep yields under check. Distribution revenues have bottomed out. ISEC is rapidly building loan assets which will drive earnings in the near term. All the above, along with cost control will drive earnings at FY20-22E CAGR of 17.9%. We increase FY20E/21E/22E APAT estimates by 0.6/4.8/5.1%, and continue to rate ISEC a SELL with a TP of Rs 376 (16x Dec-21E EPS). We believe 16x is a fair multiple for the stock given market linked nature of its business lines. A rally in equity markets coupled with increased retail participation remains a key risk. Higher core broking revenues and strong growth in funding book drive profits, while distribution and IB remain soft. Cost decline is lower than our expectation.

With increased competitive intensity and changing mix, broking yields are expected to further decline. Additionally, regulatory reduction in MF TERs continues to pressure distribution revenues in the short term. Cost control will be a key earnings driver (~14.4% YoY in FY20E). We expect FY19-22E APAT CAGR of 12.7%. A rally in equity markets coupled with increased retail participation remains a key risk to our call. Higher than expected distribution and IB revenues offsets softer broking revenues. Cost decline is lower than expectation. We increase FY20E/21E/22E APAT estimates by 7.6/8.1/9.0% to build in better distribution and IB outlook. We rate ISEC a NEUTRAL with a TP of Rs 288 (14x Sep-21E EPS).

With increased competitive intensity and changing mix, we except broking yields to continue to decline. Additionally, regulatory reduction in MF TERs continues to pressure distribution revenues in the short term. Cost control will be a key earnings driver (~-10% YoY in FY20E) and we await detailed management commentary on the same. We expect an anemic FY19-22E APAT CAGR of 5.4%. A rally in equity markets coupled with increased retail participation remains a key risk to our call. Despite softer revenues, better cost management aided ISEC to report an in-line 1QFY20. ISEC continues to diversify its revenue streams (distribution of bank products) and focus on cost reduction, as challenges to its core broking and distribution revenue continue. We rate ISEC a NEUTRAL with a TP of Rs 225 (14x Jun-21 EPS).

With increased competitive intensitywe except broking yields to decline further. Additionally, regulatory reduction in MF TERs will pressure distribution revenues. The only silver lining we see is the emerging cost consciousness. We expect an anemic FY19-21E PAT CAGR of 4.8% p.a. Longer than expected rally in equity markets coupled with increased retail participation remains a key risk. We rate ISEC a NEUTRAL post weaker than expected 4QFY19. Challenges to revenue and earnings growth continue due to increased competition and regulatory pressures. Our TP stands at Rs 235 (14x FY21E EPS).

As all major segments of the business are under pressure we downgrade stock to NEUTRAL with a TP of Rs 298 (+8.6%) based on 16x Dec-20E EPS. Our multiple is premised on growth opportunities, market leadership and ISEC's strong financial products distribution franchise. ISEC reported a disappointing 3QFY19 with revenues/PAT at Rs 3.9bn/1.0bn (-18/-34% YoY). Broking/distribution revenues declined 17/12% YoY to Rs 2.3/1.1bn, while investment banking revenues declined 37% YoY to Rs 256mn. EBITDA declined 33% YoY as management was able to reduce costs only by 3% YoY.

We initiate with a BUY rating and TP of Rs 352 (+19.1%). ICICI Securities (ISEC) is one of the strongest retail investing platforms for direct equities (9.2% vol. market share). The company has retained its market leadership position despite intense competition. ISEC has also built a strong financial products distribution business (26.2% of revenues). We believe that ISEC will be a key beneficiary as financialization of savings grows.

IPO NOTE

ICICI Securities Ltd. (ISEC) is a leading technology based securities firm in India that offers a wide range of financial services including brokerage, financial product distribution and investment banking; and focuses on both retail and institutional clients....

company is the largest equity broker in India since fiscal 2014 by brokerage revenue and active customers in equities on the NSE. The electronic brokerage platform provides an integrated interface that allows its customers to track various portfolio parameters, including the performance of their investments. The company operates through 200 owned...

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Incorporated in 1995, ICICI Securities (a subsidiary of ICICI Bank) is headquartered in Mumbai and has its operations across India, United States, Singapore and Oman. It operates through its 200 own branches along with 2600 branches of ICICI Bank and also associated with 4600 sub brokers, authorised persons, independent financial associates and independent associates across 500 cities. It is a leading technology-based securities company in India that offers a wide range of financial services such as distributing various 3rd party financial products which includes mutual funds, insurance products, loans, and pension products, the advisory services which includes financial planning, equity portfolio advisory, access to alternate investments, retirement planning and estate planning, brokerage services and also capital markets services which include management of public equity offerings, share buybacks, tender offers and equity private placements. It has also ventured into investment banking business and offers equity capital markets services and other financial advisory services to corporate...

ICICI Securities Ltd. (ISL) is a leading securities firm in India that offers a wide range of financial services including brokerage, financial product distribution and investment banking. ISL has been the leading equity broker in India since FY14 by brokerage revenue and active customer in equities on the National Stock Exchange, primarily through their significant retail brokerage business, which accounted for ~91% of the revenue from brokerage business in FY17. The retail brokerage and financial product distribution business allows its customers to access the Indian financial capital markets through ICICIdirect platform and provides them with a seamless settlement process through a 3-in-1 account, which links the electronic brokerage platform with...

IPO Note - ICICI Securities Limited Issue Open: Mar 22 - Mar 26, 2018, Price Band: Rs. 519 - 520, Issue Size: 77,249,508 Equity Shares (Entirely Offer for sale - including ICICI, Bank Shareholders reservation of 3,862,475 eq sh)