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Higher opex, weak IB revenue mar performance

* ICICI Securities (ISEC)’s overall revenue declined 1% YoY to INR8.9b in 4QFY23, in line with our estimate, as the weakness in retail brokerage and IB revenue was offset by strong interest rate-linked revenue (MTF and Treasury book) and distribution income.

* ISEC’s retail broking revenue declined 13% YoY to INR3.2b. However, the decline in overall retail equity segment revenue was restricted to 6% thanks to 16% YoY growth in allied revenue. The issuer services segment’s revenue dipped 80% YoY to INR127m.

* PAT stood at INR2.6b (-23% YoY), 5% lower than our estimate, The C/I ratio increased to 60.1% (v/s our estimate of 58.7%). This includes a one-time provision of INR161m pertaining to the reversal of penalties charged to customers in lieu of the peak margin shortfall. The adjusted C/I ratio was at 58.3%, better than our estimate of 58.7%.

* ISEC’s revenue for FY23 stood at INR34.3b (flat YoY) and PAT at INR11.1b (- 31% YoY).

* We maintain our BUY rating with a TP of INR530 (premised on 12x FY25E P/E).

Weakness in retail broking revenue continues

* For 4QFY23, ISEC’s retail broking revenue declined 19% YoY to INR2.6b. However, its retail cash segment market share improved 105bp YoY to 11%, while derivatives segment market share expanded 32bp YoY to 3.6%.

* Institutional Equities segment revenue declined 21% YoY to INR493m in 4QFY23. Other fees and charges were up 96% YoY at INR317m, along with improvement in treasury income to INR454m (up 108% YoY).

* Issuer services and advisory revenue fell sharply by 80% YoY to INR 127m.

* ISEC added 371k new customers in 4QFY23 v/s 618k in 4QFY22. Active clients as a % of the total client base declined to 31% in 4QFY23 from 45% in 4QFY22. The number of NSE active clients fell to 2.33m in 4QFY23.

Distribution income and Treasury income drive revenue growth

* For 4QFY23, ISEC’s interest income was higher by 13% YoY to INR1.7b. Avg MTF book improved to INR64b YoY from INR57b, whereas MTF market share rose 40bp YoY to 22.6%.

* Distribution revenue rose 14% YoY to INR1.9b, led by strong performance in the Life Insurance segment. SIP flows increased sequentially to INR13b in 4QFY23, the third consecutive quarter of increases.

* Investment & Trading income increased 108% YoY to INR454m

One-off provision and tech investments lead to increase in C/I ratio

* For4QFY23, the C/I ratio increased to 60.1% (v/s our estimate of 58.7%) from 49% in 4QFY22. This includes a one-time provision of INR161m pertaining to the reversal of penalties charged to customers in lieu of the peak margin shortfall. The adjusted C/I ratio was at 58.3%, better than our estimate of 58.4%.

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