ICICI Securities Ltd - IPO Note - SSJ Finance & Securities

Incorporated in 1995, ICICI Securities Ltd 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.

Largest Equity Broker in India Powered by their Proprietary Technology Platform: ICICIdirect

ICICI Securities has been the largest equity broker in India since fiscal 2014 by brokerage revenue and active customers of approximately 0.7 million had traded on the National Stock Exchange (Source: CRISIL) in the preceding 12 months, powered by their significant retail brokerage business. The company's retail customers accounted for 94.3%, 93.2%, 93.0%, 91.9%, 90.5% and 89.0% of the revenue from its brokerage business (excluding income earned on funds used in the brokerage business) in fiscals 2013, 2014, 2015, 2016 and 2017 and the six months ended September 30, 2017, respectively.

Strong and Growing Distribution Business with an "Open-Source" Distribution Model

The company has a strong and growing distribution business, where they distribute third-party mutual funds, insurance products, fixed deposits, loans and pension products to their retail customers for commission income. The company's revenues from the distribution business have increased from Rs 162.14 crores in fiscal 2013 to Rs 350.06 crores in fiscal 2017 and were Rs 328.05 crores in the nine months ended December 31, 2017. Revenue from the distribution of third-party mutual funds accounted for 36.7%, 47.3% and 60.7% of its revenue from the distribution business in fiscal 2013, 2017 and the nine months ended December 31, 2017, respectively. The company has adopted an "open-source" distribution model with respect to all its distribution products, except insurance products, pursuant to which the company does not distinguish between the third-party partners whose products they distribute based on affiliation.

Diversify Revenue Streams and Continue Reducing Revenue Volatility

Over the years, the company has been working on diversifying its revenue streams to reduce volatility in revenues associated with their brokerage business by increasing the contribution from distribution and investment banking businesses. As a result, the contribution of brokerage business to overall revenue has decreased from 70.3% in fiscal 2013 to 62.6% in fiscal 2017. Within the distribution business, the company will continue to offer new products and services to reduce reliance on particular products.

Valuation

ICICI Securities has reported a CAGR of 18.8% and 47.4% on revenue and net profit fronts respectively over FY2013-2017. On its upper band of price of Rs 520, the issue is priced at PE ratio of 31.5x of its 9MFY2018 EPS of Rs 12.4. We believe IPO is fairly valued giving little upside to investor. Hence, we recommend to Avoid the IPO.

Source : Equity Bulls

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