IGI Logo

Strong performance across revenue streams

* 1QFY22 was another robust quarter for ISEC, following an overall strong FY21. PAT was up 58% YoY to INR3.04b (33% beat), driven by 36% growth in revenue (18% beat). C/I ratio inched up ~430bp sequentially to 45%, led by a 42% rise in employee costs. In our view, variable expenses were front loaded during 1QFY22. Employee cost-to-total income stood ~20% v/s ~23% in FY21 and 29-32% over FY18-20.

* Strong momentum in the capital market, coupled with a healthy deal pipeline in Investment Banking, has led us to raise our FY22E/FY23E EPS estimate by ~19%/25%. Operating leverage remains huge in this business. We maintain our Buy rating with a TP of INR915/share (21x FY23E EPS).

Retail Broking: Customer acquisition picks up; limited impact of phase II/III margin norms

* ISEC added 390k new customers v/s 354k QoQ. Of this, ~270k customers were added through the Digital channel initiated last year. As per the management, the scale and mix that it is focusing on will lead to lower customer acquisition cost.

* The activation rate witnessed a sharp decline (1,300bp QoQ) to 71% as customers sourced through ICICIB network were low. The number of NSE active clients increased to 1.9m from 1.6m QoQ.

* Change in equity market share (down 40bp QoQ to 9.2%) is principally reflective of the change in mix towards Institutional volumes in Jun’21. As per the management, there has been no impact on its Retail market share.

* Revenue from Retail Broking improved ~2% QoQ to INR3.5b, despite the moderation in market share. With strong market activities and stabilizing market share post margin norms, we expect the momentum to continue in ensuing quarters.

* The Institutional Equities segment delivered 24% YoY revenue growth at INR432m.

Healthy performance in the distribution of financial products

* Distribution revenue rose 51% YoY to INR1.21b (QoQ not strictly comparable due to seasonality).

* In MF distribution, the SIP count increased by 35% YoY to 0.85m, while ISEC’s market share improved by 91bp to 4.08%. Overall MF AUM was up 38% YoY to INR440b.

* With healthy deals, revenue from Investment Banking was strong at INR474m. The company continues to have a strong deal pipeline. With a supportive market, this revenue stream can surprise positively.

Highlights from the management commentary

* It has guided at an employee cost-to-income ratio of 23-25% in FY22.

* Strong QoQ growth in the MTF book was driven by both higher demand for MTF (higher absolute amount) and some gain in market share. Its market share in MTF is currently at 22%.

Valuation and view

Changes in ISEC’s product and sourcing strategy have yielded results over the past year. The ‘NEO’ plan has helped counter competition from discount brokers as well as some traditional brokers who offer discount plans. We are now seeing the digital sourcing model gain strong traction in terms of customer acquisition. After a few turbulent years, the Distribution business has stabilized. The impact of regulations on margin so far have been miniscule. Going forward, overall trends in industry volumes would be key to watch out for in FY22E. We raise our FY22E/FY23E EPS estimate by ~19%/ 25% to factor in strong revenue traction across the board. We maintain our Buy rating with a TP of INR915 per share (21x FY23E EPS).

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer