ICICI Securities Limited : (541179 INE763G01038) : A Digital app based company availaible at attractive valuations cmp Rs 410-415 TP Rs 555

CMP: Rs 415(6-3-2021)       1 year  Target Price Rs 555

 

ABOUT COMPANY:

ICICI Securities (ISEC) pioneered online trading in India more than 20 years ago, with the launch of icicidirect.com. Since then, Company has been at the forefront of innovation, launching pioneering products and services. ICICI Securities Limited (ISEC) is a subsidiary of ICICI Bank Ltd.

ISEC is digitally-led and knowledge-driven financial services firm steered by the goal of fulfilling the financial needs of our customers throughout their life cycle journey. ISEC is India’s leading full-service financial powerhouse, offering a wide range of products and services spanning equity services, financial product distribution, investment banking and private wealth management

ISEC operates www.icicidirect.com, a virtual financial supermarket, meeting the three need sets of its clients - investments, protection, and borrowing. Through its four lines of businesses -- broking, distribution of financial products, wealth management, and investment banking. ISEC serves customers ranging from the retail and institutional investors to corporate to high net-worth individuals to government.

The Company is a leading distribution franchise, being the second largest non-bank mutual fund distributor based on revenue. Its distribution business primarily consists of the distribution of financial products and services offered by third parties to its customers. These products include mutual funds, life and general insurance, corporate fixed deposits, loans, tax services, and pension products. The Company earns commission from third parties for the distribution of their products, which may be in the form of recurring commissions for longer-term products.

ICICI Securities has expanded depth and breadth of distribution business by making available a full array of loan products comprising of :

# home loans

#  auto loans

 # personal loans

# loan against property(LAP)

# gold loans

# lease rent discounting

# credit/travel cards etc.

ICICI Securities has one of the largest pan-India distribution network of 150 ICICIdirect offices in over 70 cities, 9,400+ sub-brokers, authorised persons, Independent Financial Associates (IFAs) and Independent Associates (IAs). As on March 31, 2020, the Company distributed over 2,600 mutual fund schemes. In FY2020, the Company continued its growth with a focus on increasing the number of clients and total AUM.

Performance as on 31-3-2020

Technicals

Key positive Factors:

1.     1.   An asset light  high operating leverage DIGITAL business model.

2.      2.  Increasing reach through brick & click model 4500+ ICICI bank branches ,150 icici direct branches,9400+ partners

3.      3 .  Strong & growing customer base & Assets: 15lakh+active clients, 10% mkt share, Rs 36000crores MF Asset.

4.      4.  Client based increased to 5millions, ADDED 1.4Lakhs clients in Q3 which was highest ever.

5.       5. Cutting OPEX by reducing branches and increasing channel partners.>EBITA positive

6.      6.  High promoter holding 75% along with FIIs holding approx 4.6% & MF 7%

7.      7.  High ROCE 38%, ROE 70%.

8.      8.  Consistent Profit & increasing Dividend paying company in Last 3 years. Rs 14.75 Dividend paid in FY 20-21

9.      9.  YTD Q3 FY20-21 Revenue 1846crores up by 48%, NP 738 crores resulted in EPS of approx Rs 23.

Te   10. Technically stock looks in accumulation zone and has not participated in any rally & a strong bounce is due.

Key Negatives:

1.       High debt /equity ratio 1.3

2.       Rising competition with low/discount brokerage platforms like Zerodha etc.

3.       Highly  competitive & price sensitive business where retaining customer is big challenge.

Investment rational:

Overall online trading, investment business has been growing thanks to digitization and increasing number of young investors venturing into trading. More digital penetration is expected in future, as industry has witnessed a sharp shift from physical to digital/online transactions. ISEC having a strong parentage of ICICI Bank & trust of huge increasing client base. Stock markets have been rising in last 6 months which has increased market caps which is favorable for ISEC business model ,higher trading volume, high stock prices, would result in higher brokerage & commissions in Q4. High volatility in stock prices is also making investors positional traders which is also positive for ISEC. Company has introduced new plan NEO for intraday traders to compete with Zerodha & other discount brokers which is getting positive response. Also PRIME plans introduced is getting poplar where in investors has option to choose fixed brokerage at reduced rates based upon the investment style, this is helping ISEC to increase retention & add to fixed & predictable revenue .Increased focus on Home loans, Wealth management is also helping company to grow. ISEC has VERY GOOD potential to deliver EPS of 32-33 for year 20-21 .Stock is available at very attractive PE multiple of Rs 13 AT CMP of Rs 410-415. At a conservative estimate>Revenue o growth of 10% & NP growth of 15% could result in EPS for FY 21-22  in range of Rs37-38 a forward PE multiple of 15 could take this stock to Rs 555-560 levels in one year. A good 40% returns potential in one year considering higher dividend of Rs 16-17 for FY21-22.

Happy investing