Maintain REDUCE on ICICI Securities - Strong cash ADTV growth drives PAT growth - HDFC Securities

Mr. Madhukar Ladha, Institutional Research Analyst, HDFC Securities.

ICICI Securities (Q1FY21 Results Review) - Strong cash ADTV growth drives PAT growth. Maintain REDUCE

Increased cash market activity is expected to boost broking revenue by 16.3% YoY in FY21E. We believe this would be cyclical, and as volatility and retail participation recede, we expect ISEC's market share to drop back to ~8%. We remain concerned about discount brokers acquiring a higher share in active clients and believe the yields would remain pressured. We expect a muted year for distribution income (-10.7% YoY) as average MF assets and life insurance sales could remain subdued. We expect the C/I ratio to improve substantially to 50.8% in FY21E, driving FY21/22E PAT growth of 18.5/3.9% YoY. 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, i.e. 25x FY22E EPS.

1QFY21 highlights: Total broking revenue at Rs 4.1bn (+60.5%/26.6% YoY/QoQ) was led by sharp growth in cash ADTV (+115.0/57.9% YoY/QoQ), causing blended yields for the broking business to grow 16.9/31.4% YoY/QoQ to 0.7bps. Active clients base growth moderated to 3.7% QoQ; the sign-up of new clients was hit by the lockdown, and ISEC was able to launch digital sign-ups only towards the end of Apr-20. Funding book grew 158.6% QoQ to Rs 15bn due to sharp recovery in equity markets. Distribution revenue were soft at Rs 798mn (-19.1/-30.9% YoY/QoQ) as AAUMs and insurance sales were muted.

Higher employee expenses (+35.6/23.7% YoY/QoQ), despite 1.6% QoQ lower headcount, drove total expenses higher by 30.1/9.4% YoY/QoQ. Management stated that it has provided for higher variable pay, based on strong 1QFY21 operating performance. PBT for 1Q was up 69.7/23.9% YoY/QoQ to Rs 1.93bn.

Outlook: Strong cash volumes are likely to continue for most of FY21E driving up broking revenues. We expect a gradual improvement in financial product sales over the remaining 9MFY21. We build FY21E PAT growth of 18.5% YoY.

Shares of ICICI Securities Ltd was last trading in BSE at Rs.542.05 as compared to the previous close of Rs. 529.5. The total number of shares traded during the day was 84365 in over 3650 trades.

The stock hit an intraday high of Rs. 567.1 and intraday low of 535.6. The net turnover during the day was Rs. 45994372.

Source : Equity Bulls

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