Result Analysis-ICICI Securities Ltd.

Brokerage income

Particulars (In Rs. Cr.)	Q2FY22	Q1FY22	Q2FY21	QoQ %	YoY%
Revenue from Operations	856.37	745.3	680.68	14.90%	25.81%
Other Income	0.19	2.4	-0.22	–	–
Total Income	856.56	747.7	680.46	14.56%	25.88%
Employee Expenses	168.25	150.91	179.56	11.49%	-6.30%
Other Expenses (incl. Fees end comm. expense)	149.05	126.84	84.85	17.51%	75.66%
Provisions & Write Offs	-4.51	-2.95	2.19	–	–
Finance Cost	58.09	41.79	28.49	39.00%	103.90%
Depreciation	14.76	14.42	13.07	2.36%	12.93%
Total Expenditure	385.64	331.01	308.16	16.50%	25.14%
Profit After Tax	351.24	310.72	278.15	13.04%	26.28%
EPS (Rs.)	10.89	9.64	8.64	12.97%	26.04%
EBITDA	543.58	470.5	414.08	15.53%	31.27%
EBITDA Margin (Change in bps)	63.47%	63.13%	60.83%	34.60	264.16
PAT Margin (Change in bps)	41.01%	41.69%	40.86%	-0.02	15.14
Segment Revenue	Q2FY22	Q1FY22	Q2FY21	QoQ %	YoY%
Interest income	170	132	90	29.19%	89.45%
393	395	392	-0.56%	0.18%
Income from services	273	211	190	29.61%	43.92%
Net gain on fair value changes	19.92	7.46	8.46	167.02%	135.46%

Result Highlight:

• ICICI Securities Consolidated Revenue rose 14.9% QoQ and 25.81% YoY to Rs 856.37 crore.

• Despite increase of 25% YoY increase in total expenditure, net profit rose 26.3% YoY to Rs 351 crore for the September quarter compared with Rs 278 crore in the same quarter last year.

• The cost /income ratio inched up by 70 basis points sequentially to 45%, led by an 11%/34% rise in employee cost/other expenses (related to marketing cost and technology investments).

• In Q2FY22, Equities and Allied Business, which comprises retail equity, institutional equity, lending towards ESOP (Employee Stock Option Plans) & MTF (Margin Trade Funding), Prime & NEO subscription fees and other charges, rose 19% YoY to Rs. 541 crore.

• Distribution income was at Rs 151 crore, up 53% YoY. ICICI Securities’ MF revenues grew by 52% YoY to Rs. 87 crores in Q2FY22. On the back of SIP count rising 42% YoY to 0.92 million in September 2021, the company’s market share in SIP flows has expanded to 4% in Q2FY22 from 3.4% in Q2FY21. Life insurance product distribution revenues was up 92% YoY.

• I-Sec’s Private Wealth Management (PWM) business reported Rs. 232 crore of revenue in Q2FY22 up 129% on-year. The PWM business is a home-grown franchise serving 61,850 High Networth and Ultra High Networth (HNI/U-HNI) clients (6,900 added during the quarter), with an asset base of Rs. 2.49 Lakh crore, up 115% year-on-year.

• Has a client base of 63 lakh of which 5.8 lakh clients added in Q2FY22; up by over 400% YoY; highest ever quarterly addition. 77% of new customers coming from non ICICI Bank channels.

• The company has 2.58 million active clients and 2.27 million NSE active clients, up 65% and 90% YoY respectively.

• Declared Interim dividend of Rs. 11.25 per share vs Rs. 8 in Q2FY21

Management commentary:

• Commenting on the Q2 performance, Vijay Chandok, Managing Director and Chief Executive Officer, said: “Our strategy of broad basing our customer acquisition engine is paying off and I am happy to report highest ever quarterly customer addition yet again this quarter. During the quarter, younger millennials and Gen Z accounted for 65% of new customers (vs 39% a year ago) and those from tier II and below cities are now 84% of new customers (67% last year). We see a long growth runway, given our country’s current position in the financialization journey, expected secular long term GDP growth, large number of youth entering the job market annually and equally large number of retirees with both sets with differential needs.”

Guidance:

• Continue to See growth in Equity and Distribution Businesses.

• Expect More headroom for growth in insurance distribution Business.

• With several initiatives in the Derivatives segment, the management expects market share improvement in the next few quarters.

• Tie-up with HSBC will take some time to go live, and customer quality will be relatively better than other Banks.

• MTF (Margin Trading Funding) book has been growing faster, driven by new product launches a few quarters back. ISEC’s market share in the MTF business rose to 21.8% from 17% a year ago.

• ISEC aspires to reduce the C/I ratio to 40% over the medium term, primarily from operating leverage benefits. In the near term, the C/I ratio may see a marginal increase. Employee cost/revenue is likely to see a 2-3% increase in coming quarters.

• Incremental market in September was at 12%

Outlook:

ICCI Securities reported strong growth in September quarter led by strong growth across all businesses. The company’s combined (retail + institutional) market share remained stable at 8.9% in the cash segment. The total customers having opted for NEO is 1.5 Lac. The share of NEO to total derivatives volumes is 40%. Instead of seeing it as a mere trading brokerage generator, ISEC believes its NEO customer provides it with a good opportunity for cross-selling multiple products over next the few years.  It is India’s second largest non-bank MF distributor by revenue and assets. Tie-up with HDFC Life and the launch of new loan products, the traction in distribution income is expected to remain strong for the company. The C-I Ratio of the company have increased to 45%. However, with the efforts directed towards controlling fixed costs the management expects the C-I ratio to decline to sub-40% over the medium term which would add the Profitability. At the CMP of Rs. 808, ICICI Securities is trading at PE multiple of 20.7x.  Valuing the company at 17x FY23E EPS, we recommend buy on ICICI Securities at CMP of Rs. 808 for the Target Price of Rs.980.

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