ICICI Securities - Strong Quarter - Q4FY20 Result Review - HDFC Securities

Hightened market volatility and ADTVs in Mar-20 resulted in higher core $QFY20 broking revenues (+25.6/27.9% YoY/QoQ) driving total adj. revenues to Rs 4.5bn (+22.0/15.8% YoY/QoQ, +14.6% vs. est.) and APAT to Rs 1.6bn (+76.8/13.6% YoY/QoQ, +18.8% vs. est.). We increase our FY21E/22E earnings estimates by 12.7/10.8% but continue to rate ISEC a SELL with an increased TP of Rs 316 (P/E of 18x FY22E).

Broking revs at Rs 2.9bn (+25.6%/28% YoY/QoQ) were ahead of est. led by sharp improvement in cash market share (9.1%, +170/20bps YoY/QoQ), causing blended yields for the broking business to grow 20.6% QoQ to 0.53bps.

MTF+ESOP funding book contracted 49.7% QoQ to Rs 5.8bn due to steep correction in equity markets in Mar-20. Total interest income on this book was Rs 335mn (+28.4% QoQ).

Active clients base (1.1mn, +28.0/12.5% YoY/QoQ) continued to grow at a brisk pace with increasing share of clients (40.0%) opting for prime/prepaid brokerage plans. ISEC has now also converted itself into an open architecture platform and can now add customers who have bank accounts in banks other than ICICI Bank. Additionally, management stated that ISEC was now adding a commendable 1K clients/day through its online platform, partners, and RMs.

MF Distribution revenues at Rs 570mn (-3.7/-1.0% YoY/QoQ) were muted as AAUM at Rs 345bn (-2.0/-8.0% YoY/QoQ) was hit by steep decline in equity markets (Nifty 50 down 23.2% in Mar-20). Yields were at 66bps (- 1.2/+4.6% YoY/QoQ) as the newer AUM comes at higher yields post ban on upfront commissions. Price decline will become visible in AAUMs over FY21E.

Insurance distribution revenues were strong at Rs 170mn (+6.9/+42.5% YoY/QoQ) despite Mar-20 being hit by the lockdown. Higher term in mix ensured higher yields (+121bps YoY). We expect a sharp decline in insurance sales over 1HFY21 before a recovery in 2HFY21E.

Total pre-EBITDA costs were Rs 2.3bn (+1.6/+14.1% YoY/QoQ). Total head count declined 6.0/4.0% YoY/QoQ to 3,790. Management is focused on cost reduction, consequently we build in significantly lower absolute costs over FY21E/22E but with muted revenues we expect C/I ratio over FY21E/22E to be at 57.3/53.6%.

We expect FY21E to be a challenging year for broking as lower prices imply lower ADTVs. Distribution revenues will be impacted by lower MF AAUMs, a difficult environment for insurance, and alternative investment product sales. Earnings are expected to remain flat over FY20-22E. We rate ISEC a SELL with a TP of Rs 316 (18x Mar-22E EPS). Any strong rally in equity markets, higher market share, better environment for financial product sales, and any marked reduction in costs remain key risks.

Shares of ICICI Securities Ltd was last trading in BSE at Rs.360.75 as compared to the previous close of Rs. 362.55. The total number of shares traded during the day was 20001 in over 1239 trades.

The stock hit an intraday high of Rs. 367.85 and intraday low of 352. The net turnover during the day was Rs. 7208739.

Source : Equity Bulls

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