With buoyant retail investor participation in domestic equity markets, one of India’s largest stock broking firms, ICICI Securities posted a 69.7% on-year growth in net profit.
With buoyant retail investor participation in domestic equity markets, one of India’s largest stock broking firms, ICICI Securities posted a 69.7% on-year growth in net profit. ICICI Securities registered a 62% increase in brokerage income to Rs 335.7 crore, up from Rs 220 crore in the same period last year. Lower equity prices, aided by the sharp decline in valuations pushed many retail investors towards share markets. With increasing income, brokerages have increased their target price for ICICI Securities expecting good margins going forward. ICICI Securities share price gained over 2% to trade at Rs 541 per share, just shy of its 52-week high.
Cheap equity prices push retail participation
“Lower equity prices, paperless e-KYC leading to faster customer onboarding, a higher proportion of equity volumes vs derivatives and new open architecture likely drove buoyant first quarter core performance,” said CLSA in a note. ICICI Securities reported a 27% on-year growth in active trading clients, a 35% growth in average daily turnover over last year, and 100 basis points higher market share from the previous quarter. The correction is equity markets and the subsequent jump in retail investor participation has not gone unnoticed. Yesterday, SEBI Chief Ajay Tyagi too highlighted the increased retail participation. CLSA has a target price of Rs 625 per share on ICICI Securities.
Distribution revenues sink
Distribution revenue, however, did witness a setback with total distribution revenue slipping 19%, fee revenue was down 12% on-year while fees saw a 36% decline. From the brokerage business total revenue from operations were up 41%. Operating profit surged 41%. “In the case of MF and LI distribution, both, this quarter’s revenue was the lowest in more than the past 12 quarters,” said Motilal Oswal. Investment banking revenues were healthy at Rs 22 crore, up 34% from the previous year. ICICI Securities has 13 companies in its deal pipeline.
ICICI Securities said that it witnessed 90% on-year increase in the number of customers trading on a daily basis. “ICICI Securities is a classic play on increasing the financialization of savings and retail participation in equity markets. Thus, its business and profitability is very cyclical,” said Motilal Oswal. ICICI Securities is expected to grow at a 14% CAGR. ”Unlike the lending business, ICICI Securities business is largely capital-light and the entire revenue is cash-flow based. Maintain Buy with a TP of Rs 625 per share. Earnings estimates have been increased by 17% and 13% for this fiscal year and the next. Analysts say ICICI Securities is well-positioned to benefit from sectoral tailwinds.
Discount brokers could spoil the play
Although some analysts believe that ICICI Securities is well-positioned to benefit from sectoral tailwinds, an increased market share of discount brokers could work against ICICI Securities. “Given the highly cyclical nature of the business, we are concerned that we may be closer to peak earnings and worry that the market may be ascribing a closer-to-peak multiple. We maintain a REDUCE rating with a target price of Rs 540,” HDFC Securities said in note. It is expected that ICICI Securities will continue to have a strong cash volume this fiscal year, driving up revenues. Another risk associated with the stock is a prolonged lockdown or other restrictions that may hinder with the equity markets, said CLSA.