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Our Take:

IIFL Securities (IIFLSEC), belonging to the India Infoline group, is one of the key payers in the Indian financial services space offering a wide range of services including retail and institutional broking, financial products distribution, and investment banking. It is an established player with vast history and experienced management team. Also it has marquee investors like Fairfax group and other big institutional investors.

The company has constantly endeavored towards the changing the revenue mix with higher focus on distribution revenue, which limits the risk of cyclicality and brings linearity. Technology and pricing-based disruptions are gradually changing the dynamics of the industry. The company is also constantly investing in technology and launching new innovative products to remain competitive with discount brokerages. The company has reported highest ever quarterly client addition at 1.5 lakh (includes Karvy customers) in Q1FY22.

Also the company has started receiving encouraging response to its newly launched Z20 plan. We believe that the sale of land bank and continuous rise in customer acquisition, strong Investment Banking pipeline, growing financial products distribution revenue especially from Mutual fund will be the key triggers for the stocks re-rating. We had issued Initiating Report on IIIFLSEC on 28th June, 2021 and recommended Buy at LTP Rs.71.7 and add on dips to Rs. 63 band, for base case target of Rs.80.5 and bull case target of Rs.89 over the next two quarters. The bull case target of Rs.89 was achieved on 7 th July 2021, yielding return of 24.2%

Valuation & Recommendation:

IIIFLSEC has been able to stabilize its retail market share both in the cash and derivatives segments, despite the implementation of the third phase of peak margin norms. In FY21, owing to strong tailwinds across all capital market business IIFLSEC had delivered strong performance. Going forward, despite an expectation of higher volatility, we expect strong earnings growth to continue.

We have envisaged 11% CAGR in top line and 13% in bottom line over FY21-FY23E. We expect dividend yield to improve to 3.7% in FY23E from current 2.3%. The stock is trading at a steep discount to its peers which we believe, will narrow gradually as the company has started gaining lost market share.

We feel that investors can buy IIFL Securities Limited at the LTP of Rs.112.4 (12.1xFY23E EPS) and add on dips to Rs.98 (10.5xFY23E EPS) band. We expect the Base case fair value of Rs.126 (13.5xFY23E EPS) and the Bull case fair value of Rs.135.5 (14.5xFY23E EPS) over the next 2 quarters.

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