Retail broking & financial product distribution best company in India

ICICI Securities Limited (ISec), a part of ICICI group, is an integrated securities firm covering the needs of corporate and retail customers through investment banking, institutional broking, retail broking & financial product distribution businesses. Mr. Vijay Chandok is the MD & CEO of ICICI Securities who has been with ICICI group for over 25 years. Promoter holding is ~79.3% whereas among MFs ICICI prudential MF holds 2.4% under its various schemes. Market cap is Rs 15,051 cr.

Investment rationale
 

Resilient business model: Backed by strong parent, ISec has developed a strong brand & business model that is helping it to tide over the volatile markets. It offers 45+ products and services via single digital platform that provides them an advantage even under current lockdown situation where many other industries are facing services disruption. 97% & 94% transactions of equity and MF are performed online. Business model has low credit and receivable risk, virtually no inventory or supply chain risk with strong liquidity position yielding strong return on equity. ISec has the largest franchise count.

 

Amongst the market dominators: ISec has been amongst the market leaders (currently second best to Zerodha – a discount broker on active client base) in the broking business. The operational accounts of ISec have grown from 2.5 mn in FY14 to 4.9mn by Jun-20 at a CAGR of 11.5%. In Q1FY21, ISec has added ~0.9 lk new clients. Overall active clients stand at 1.5mn by Jun-20 increased by 16% YoY. Overall broking market share of ISec has almost doubled in last 5 years on account of robust franchise chain and evolved products. 65%+ revenue is generated from customers who have been with company for over five years showing business consistency.

 

Moat over peers: We believe ISec is better positioned in comparison to its peers in order to dodge the current business hiccup on account of spread of covid-19 as it has diversified products range across all the major segments, strategic business plan (focus on digitization to contain cost, enhance productivity and efficiency), high base of active clients, major revenue from clients who has been with company on longer time frame, effective digitalized systems and strong parent support.

 

Edge over discount brokers: Discount brokers disrupted the broking industry and grabbed market share of bank backed and other established broking houses due to low-cost model. ISec has survived this phase successfully and has maintained its client base on account of expertise in advisory services, various products that discount brokers do not offer.

 

Operating leverage via cost efficiency: ISec focused on capping its expenses via a) Re-evaluate branch infrastructure cost based on productivity, area efficiency and rentals b) Centralization of certain vertical to optimize infrastructure and manpower cost c) Process re-engineering to optimize acquisition related cost and d) Migrating to digital/low touch coverage models. In Q1FY21, cost to income ratio stands at 53% vs 57% of Q4FY20. No. of branches have been brought down to 171 against 198 of FY19.

 

Financial performance & valuation: In Q1FY21, company reported a 41.3% YoY growth on its topline which was aided by retail equities and allied businesses whereas bottomline registered 71.7% YoY growth on account of growth in revenue, reduction in expenses, and changes in statutory tax rates. Return ratios continue to improve (RoE of 59%). At current price, the stock is trading at 22.5x of its one-year forward earnings. 
 Fundamental :-

• Market Cap:  15,085 Cr.
• Current Price:  468.25
• 52 weeks High / Low  568.90 / 197.30
• Book Value:  37.55
• Stock P/E: 24.28
• Dividend Yield: 2.35 %
• ROCE: 38.49 %
• ROE: 48.08 %
• Sales Growth (3Yrs): 7.04 %
• Listed on BSE and NSE
• Company Website
• Face Value:  5.00

• PEG Ratio:
• Promoter holding: 79.22 %
• Pledged percentage: 0.00 %
• Debt:  1,657 Cr.
• Price to Earning: 24.28
• EPS:  19.29
• Net profit:  621.31 Cr.
• Profit growth: 32.00 %
• Profit growth 7Years: %
• Net profit preceding 12months: 542.00 Cr.
• Profit growth 3Years: 17.00 %
• Dividend yield: 2.35 %
• Debt to equity: 1.37
• Sales last year:  1,721 Cr.
• Sales growth: 12.57 %
• Unpledged promoter holding: 79.22 %
• Investments:  2.47 Cr.

Positive:

Company has a good return on equity (ROE) track record: 3 Years ROE 57.87%

Company has been maintaining a healthy dividend payout of 53.03%

Duration of recommendation: Short to Medium term