ICICI Securities Ltd - Research Report

Private Client Research




Finance - Stock Broking


ICICI Securities Ltd

Finance - Stock Broking

November 12, 2018

Sensex: 34812.99

CNX Nifty: 10482.20


BSE: 541179

Reco Price
Rs. 246
Price Target (1.5 - 2 Years)
Rs. 345


November 12, 2018



CNX Nifty








Stock Data

CMP (Rs)
Face value (Rs)
52 Week Range (Rs)
463.00 - 225.55
Market cap (Rs Crores)
Price To Book Value (x)
P/E Ratio (x)

One Year indexed Stock Performance

ICICI Securities Ltd Sensex
ICICI Securities Ltd
Return (%)


(in %)

+91 22 6639 3000



A part of ICICI Bank, ICICI Securities (ISec) is a leading technology-based securities firm that offers a wide range of financial services including brokerage, financial product distribution and investment banking. It focuses on both retail and institutional clients and is the largest equity broker in India since fiscal 2014 by brokerage revenue and active customers in equities on the National Stock Exchange. Its retail brokerage business accounted for ~90% of its total brokerage revenue (excluding income earned on ISec’s funds used in the brokerage business) in FY18. As of March 31, 2018, ICICIdirect, the company’s award winning proprietary electronic brokerage platform (www.icicidirect.com), had approximately 40 lakh operational accounts of which 8 lakh had traded on NSE in the preceding 12 months.

The company categorizes its business into three verticals namely brokerage, distribution and investment banking.

Brokerage Business:
ISec’s retail brokerage service gives its retail customers access to the Indian financial capital markets through its ICICIdirect platform (www.icicidirect.com). This platform provides them with a seamless settlement process through a 3-in-1 account - the company’s electronic brokerage platform is linked to the customer’s savings bank and dematerialised account held with ICICI Bank.

ISec is the largest retail broker in India with a market share of over 9% of Average Daily Turnover on the NSE?. As of March, 2018, ICICIdirect had approximately 40 lakh operational accounts of which 8 lakh had traded on NSE in the preceding 12 months. Since inception, ISec has acquired a total of 46 lakh customers through this platform as of March 31, 2018. Retail accounted for ~90% of brokerage business in FY18.

ISec’s research team provides research based analytical reports of over 230 Indian stocks for its retail customers.

ISec provides domestic and foreign institutional investors with brokerage services, corporate access and equity research covering a universe of 210 Indian companies. ISec is empanelled with a large cross-section of institutional clients, including foreign institutional investors, who are serviced through dedicated sales teams. ISec has established a significant presence amongst domestic institutional investors and is increasing its focus on attracting foreign institutional investors. Institutional business accounted for 8.7% of brokerage revenue in FY18.

Financial Products Distribution:
ISec distributes third-party mutual funds, insurance products, fixed deposits, loans and pension products to its retail customers for commission income.

ISec has adopted an “open-source” distribution model with respect to all its distribution products, except insurance products; this implies that ISec does not distinguish between products it directly distributes and those offered by third-party partners whose products it distributes based on affiliation. ISec also provides its customers with recommendations of mutual funds based on various qualitative and quantitative parameters. As a result of these factors, ISec was the second largest non-bank distributor of mutual funds in India in terms of revenues from distribution, in fiscal 2017 (Source: CRISIL). In addition, its retail platform (icicidirect.com) enables customers to manage their investments across multiple asset classes.

In addition to its strong online presence, the distribution business is supported by its nationwide network, consisting of over 200 own branches, 2,600 ICICI bank branches, over 5,400 sub-brokers, authorized persons, Independent Financial Advisors (IFAs) and Investment Advisors (IAs) as on March 31, 2018.

In mutual funds (MFs), ISec distributes funds and Portfolio Management Services (PMS) of various fund houses. However, in insurance, it distributes insurance products of only ICICI Prudential Life in life and ICICI Lombard in non-life insurance.

Under its distribution business, the company gets a commission when the client signs up for a product and gets a regular commission for the term of the client’s association with the AMC or insurer.

Investment Banking:
ISec’s investment banking business offers equity capital markets services and other financial advisory services to corporate clients, the government and financial sponsors. Its services include management of public equity offerings, share buybacks, tender offers and equity private placements. It also provides clients with financial advisory services in relation to domestic and cross-border mergers and acquisitions, private placements and restructuring.

Mode of operation:
ISec operates through its own branches (over 200), 2,600 ICICI bank branches, over 5,400 sub-brokers, authorized persons, Independent Financial Advisors (IFAs) and Investment Advisors (IAs) as on March 31, 2018.

The company also offers Private wealth Management, wherein it helps manage wealth and financial matters of rich executives, entrepreneurs, heirs, business owners and professionals. This also helps the company cross sell its other services.

Leadership position in Brokerage and expanding distribution business will aid growth

Investment Rationale:
Though the financial intermediary business is very competitive, ISec has an edge due to a number of factors including its great retail franchise, vast distribution network and better connect with clients.

One of the biggest beneficiaries of increased financial savings:
Being the largest retail broker and a prominent distributor of mutual funds and insurance, ISec stands to benefit immensely from the emerging trend of savings moving towards financial instruments. As the demographic profile on India’s population changes to a greater number of working age people who enter the workforce, the preference for financial assets will increase. Given the unattractiveness of physical assets like real estate and gold after the regulatory curbs imposed by the government, the trend of financialization of savings will get even stronger. As the retail investor becomes better informed about the long-term benefits of investing in equity and the economy gets more formalized, players like ISec will be the biggest beneficiaries given their stronghold in the industry.

Highly scalable business at no or minimal capital expenditure:
As businesses move towards digital, the need for physical branches declines significantly, reducing the need for capital expenditure. ISec leverages its parents’ branch network very well to serve its existing clients and onboard new clients making the process very cost effective. The stable fixed costs structure creates a huge operating leverage, in which major part of additional revenues flow to the bottomline.

Increasing share of fee-based distribution business:
ISec has been focusing more on its distribution business since the broking business is more cyclical. The brokerage business (including income from margin funding) currently forms 65% of the company’s total revenue. The company’s distribution business, which is less cyclical and more sticky in nature, has grown at a CAGR of 24% in the last five years to Rs. 470 crores in FY18, forming 25% of total revenue. This business will further get a boost if the insurance regulator, IRDA (Insurance Regulatory Development Authority of India), relaxes the insurance distribution norms and allows one distributor to sell insurance products from multiple insurers.

Strong parentage:
Having one of the country’s largest private banks as a parent helps the company garner more clients in all of its business verticals. The company also exploits the client base of its parent for prospective clients and leverages the bank’s branch network to service clients. The company also saves itself from setting-up physical branches in tier-2 and 3 towns as the bank’s network is already present in many of these towns.

Steady cash flow:
Given the low fixed cost nature of business, improving business conditions bring in decent cash to the company every year, a majority of which goes towards paying dividends. The company has generated free cash between Rs. 130-210 crores in 5 years to FY17. It invested ~Rs. 1200 crores in working capital to start its margin funding business in FY18, which led to a decline in cash reserves. However, this investment has opened up a new stream of revenue for the company, which will further add to the cash flows going forward.

Key Business Highlights:

Revenue Structure 2013 2014 2015 2016 2017 2018
Brokerage 497 545 835 737 878 1,227
- Retail 422 462 703 607 702 917
- Institutional 25 34 53 54 74 107
- Others 50 49 79 76 102 203
Distribution 162 187 267 254 350 468
Other 2 8 6 13 2 -
Brokerage and Distribution 661 739 1,107 1,004 1,230 1,694
Investment Banking 70 59 64 83 119 143
Treasury and Trading (25) 14 39 37 28 22
Total 706 812 1,209 1,125 1,377 1,859
Growth (YoY) 15.1% 48.9% -7.0% 22.5% 35.0%
Bokerage as a % Total Revenue 70.4% 67.1% 69.0% 65.5% 63.8% 66.0%
Market Share (Broking) 4.4% 4.5% 4.7% 6.6% 7.8% 9.0%
4 Million Operational Accounts
Active Clients (Lakhs) 5 6 6 6 8
Average Brokerage Revenue per Client (Rs.) 9,243 12,776 10,117 11,698 13,106
MF Distribution Revenue (Rs. Crore) 79 154 112 166 285
MF Average AUM (Rs. Crore) 7,600 12,000 16,000 21,200 30,500
SIP Count (Lakhs) 2.4 3.2 4.4 6 10.3
MF as a % of Distribution Revenue 42.3% 57.7% 44.0% 47.3% 60.9%
Distribution Revenue Ex-MF 108 113 142 184 183

Sustained risk-off environment in Equity Markets: Significant risk-off environment (volatility) in equity markets may drastically reduce the retail participation in equity markets, which will hurt the company’s performance as it is dependent on retail broking for a large part of its business.

Unforeseen Disruptions: Broking has transformed significantly in the past three decades and is vulnerable to disruption from new-age technology or solutions going forward.


There are primarily two types of brokers in India – Full Service Brokers and Discount Brokers.

Full-service brokers offer a wide range of services like offline and online trading, demat accounts, investment advisory and other customized services.

Discount brokers offer services at low and fixed brokerage fees, irrespective of size of order, and provide such services via an online platform. Discount brokers typically do not provide any cost intensive facilities and services such as physical offices, research reports and relationship managers. Currently, there are more than 15 discount brokers in India.

Unlike the trend in developed market economies such as the United States, where 65-70% of retail trades, by volume, take place through discount brokers, full service brokers continue to dominate the brokerage industry in India, accounting for over 95% of the industry revenues.

Majority of the large brokers in India are either subsidiaries of banks or have been in the business for several years. Large brokers have been diversifying their business model over the last few years to counter market volatility and increasing pressure on revenue yields. Related fee-based activities such as the distribution of mutual funds and insurance and capital markets lending were the first “level” of diversification for most brokers in India. However, some of the brokers have entered into the next “level” of diversification by acquiring non-banking finance company (NBFC) license and focusing on growing their non-capital market credit books. The success of these entities in the lending business in the long term would be dependent upon their ability to manage the liability side of the book and manage risk effectively.

The key growth drivers for brokerage business in India are increased retail participation in financial assets, growing smartphone penetration and increasing financial inclusion.

Indian Asset Management Companies (AMCs) adopt a multi-channel approach to distribute their products, using banks, nationwide distributors such as brokerages and wealth management companies and Independent Financial Advisors (IFAs), in addition to direct and online channels. The importance of distribution partners is high, especially in “Tier II” and “Tier III” cities in the context of minimal direct presence by AMCs. Distributors play a key role in the Indian mutual fund ecosystem, primarily due to the under-penetration of mutual funds as an asset class and the low level of financial awareness, especially among individual investors.

As of March 31, 2017, there were a total of 732 distributors meeting the AMFI criteria on disclosure of commissions as compared to 373 as of March 31, 2012. Despite the consistent entry of new distributors, the large distributors command a significant share of the revenues with the top ten distributors accounting for approximately 48% of distribution revenues.

Banks constitute seven of the top ten distributors, by distribution revenues, supported by their large network and greater access to customers. NJ IndiaInvest is the largest mutual fund distributor in India, with a revenue market share of 8.9% followed by HDFC Bank Limited with a revenue share of 7.9%. Among non-bank distributors, NJ IndiaInvest is the leading distributor, followed by ICICI Securities Limited with a revenue market share of 3.5%.

Distribution Market Share:

ICICI Securities Ltd Source: AMFI, CRISIL Research & ISec

Major growth drivers for the industry are government support towards financial savings, tax incentives, increasing financial inclusion and improving digitization.

Life Insurance:
The size of the Indian life insurance industry is Rs. 4.2 trillion on a total-premium basis in fiscal 2017. The total premium in the Indian life insurance sector grew at a Compound Annual Growth Rate (CAGR) of approximately 17% between fiscal 2001 and fiscal 2017, after private players were allowed to enter the sector in calendar year 2000.

According to CRISIL Research, the total premium in the Indian life insurance industry is expected to grow at a CAGR of 13-15% from Rs. 4.2 trillion in fiscal 2017 to Rs. 7.9-8.1 trillion in fiscal 2022. Improving economic growth, low inflation, and an increase in financial savings along with rising awareness of insurance are expected to be the key growth drivers.

Investment Banking:
There were a total of 123 investment banks in India which have underwritten Equity Capital Markets (ECM) securities between April 1, 2012 and September 30, 2017. Despite the highly competitive nature of the industry, the top ten investment banks have underwritten over Rs 10.2 trillion of securities during the period from April 1, 2012 and September 30, 2017. In addition, five out of the top eight investment banks are associated with either domestic banks or brokerages, reflecting the growing prominence of domestic investment banks. In terms of number of ECM issuances in India during the period from April 1, 2012 and September 30, 2017, ICICI Securities is the leading investment bank.

The following tables set forth a comparison of the top Indian investment banks, by number of issuances, in key sub-segments of the ECM segment (overall and in the private sector) from April 1, 2012 and September 30, 2017:

ICICI Securities Ltd

Profit & Loss Statement:- (Consolidated)

(Rs Crores)

Description Mar-16 Mar-17 Mar-18 Mar-19E Mar-20E Mar-21E
Net Sales 1106.00 1404.00 1859.00 1952.00 2139.00 2355.00
Growth (%) 26.93% 32.41% 5.00% 9.55% 10.12%
Power & Fuel Cost - - - - - -
% Sales 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Employee Benefits Expenses 401.00 485.00 545.00 605.00 663.00 730.00
% Sales 36.27% 34.51% 29.33% 31.00% 31.00% 31.00%
Other Expenses 190.00 223.00 256.00 264.00 289.00 318.00
% Sales 17.14% 15.84% 13.79% 13.50% 13.50% 13.50%
General & Administration Exp 55.00 89.00 95.00 98.00 107.00 118.00
% Sales 4.97% 6.35% 5.10% 5.00% 5.00% 5.00%
Selling & Distribution Exp 36.00 26.00 21.00 21.00 24.00 26.00
% Sales 3.25% 1.89% 1.13% 1.10% 1.10% 1.10%
Miscelleneous Exp 9.00 15.00 22.00 21.00 24.00 26.00
% Sales 0.78% 1.06% 1.19% 1.10% 1.10% 1.10%
Total Expenditure 690.00 838.00 940.00 1009.00 1106.00 1218.00
Less: Expenses Capitalised - - - - - -
EBITDA 416.00 566.00 920.00 943.00 1033.00 1138.00
EBITDA Margin 37.59% 40.34% 49.46% 48.30% 48.30% 48.30%
Other Income - - - - - -
Depreciation 16.00 15.00 15.00 15.00 15.00 15.00
EBIT 400.00 551.00 904.00 928.00 1018.00 1123.00
Interest 26.00 29.00 49.00 50.00 50.00 50.00
Profit before Tax (Before Exceptional Items) 374.00 522.00 855.00 878.00 968.00 1073.00
Exceptional Items - - - - - -
Profit Before Tax 374.00 522.00 855.00 878.00 968.00 1073.00
Tax 135.00 183.00 297.00 303.00 334.00 370.00
Tax rate 36.19% 35.14% 34.76% 34.50% 34.50% 34.50%
Profit After Tax 239.00 339.00 558.00 575.00 634.00 703.00
PAT Margin 21.58% 24.11% 30.00% 29.46% 29.65% 29.83%
Share of Associates - - - - - -
Minority Interest - - - - - -
Consolidated Net Profit 239.00 339.00 558.00 575.00 634.00 703.00
No of shares 81.00 81.00 32.00 32.00 32.00 32.00
EPS 2.96 4.20 17.31 17.85 19.68 21.80
CMP - - - 246.00 246.00 246.00
Market Cap - - - 7926.00 7926.00 7926.00
Debt 173.00 395.00 673.00 673.00 673.00 673.00
Cash 627.00 867.00 1477.00 1477.00 1477.00 1477.00
Investments (Current) - - - - - -
PE - - - 13.80 12.50 11.30
EV/EBITDA (1.09) (0.83) (0.87) 7.55 6.89 6.26
Source: Stockaxis Research, Company Data


The stock currently trades at a PE of 13.8x FY19E EPS and 12.5x FY20E EPS. We recommend buy with a target price of 345, valuing the stock at 18x FY19 EPS.