Buy ICICI Securities Ltd For Target Rs.820 - IIFL Securities
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An in-line quarter
In 4QFY22, ISEC delivered a profit of Rs3.4bn (+3% YoY, -11% QoQ). This was driven by QoQ moderation in broking revenue due to lower retail equity volumes and sharply lower investment banking revenue (-41% QoQ). Distribution income grew QoQ driven by higher life insurance revenue and interest income also grew QoQ aided by growth in the MTF book. Client acquisition moderated (-9% QoQ) to 618k as ISEC aims to optimise the mix of new acquisitions. Going forward, we buildin a moderate 6% Cagr in broking revenue and a decline in investment banking revenue from a high base. Overall revenue Cagr of 9% will be driven by distribution income and interest income. We trim estimates by 3.4/3.3% for FY23/24ii and value the stock at 18x FY24ii EPS or Rs820/share.
Key highlights of 4QFY22: ISEC’s reported profit of Rs3.4bn in the quarter was marginally below estimate, driven by higher operating expenses while revenue was in-line with estimates. Broking revenue declined 5% QoQ due to lower retail equity volumes, while other revenue also declined largely due to lower investment banking revenue (-41% QoQ). Operating expenses were higher than estimated driven by tech and marketing costs; cost-to-income ratio was 49%.
Cut earnings by 3.4/3.3% for FY23/24ii: We maintain our revenue estimates unchanged at a 6.5/8.5% YoY growth for FY23/24ii. Revenue growth would be driven by distribution income and interest income while broking revenue growth would likely be modest. Investment banking revenue will likely moderate from current levels. The key change to earnings is driven by higher operating expenses, to factor in for higher tech and marketing spends going forward.
Profitability outlook remains strong; maintain BUY: While lower investment banking revenues and higher operating expenses could see profit declining in FY23ii, we expect the relatively high pace of client acquisitions to continue driven by newer product offerings. This should aid ISEC in delivering a 40-50% RoE over FY23-25ii. Current valuations at ~14x FY24ii EPS are supportive as well. Maintain BUY
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