ICICI Securities IPO: Here’s All You Need To Know

ICICI Securities Ltd. will launch its Rs 4,017-crore initial public offering today, allowing parent ICICI Bank Ltd. to part-sell its stake in India’s largest broking firm.

The private bank will offload 7.72 crore shares, or 24 percent stake, in the three-day offer at Rs 519-520 apiece, valuing the company at Rs 16,751 crore. That’s lower than the initially targeted Rs 25,000 crore at the time of filling its draft red herring prospectus.

Of the shares on offer, 5 percent are reserved for ICICI Bank employees, 9.5 percent for retail investors and the rest for institutional investors. The lender will continue to hold 76 percent stake in the company after the issue.

This will be the third issue from the ICICI Group in three years—after Rs 6,000-crore ICICI Prudential Life Insurance and Rs 5,700-crore ICICI Lombard General Insurance IPOs.

SBI Caps, Bank of America Merrill Lynch, Citigroup, IIFL, CLSA and Edelweiss are managing the issue, according to the draft prosepectus filed in December.

Business

Incorporated in 1995, ICICI Securities offers financial services such as retail and institutional broking, financial product distribution, investment banking, merchant banking and advisory services to financial institutions, corporates, retail investors and high net-worth individuals. With the launch of ICICIdirect in 2000, the company started offering brokerage services online.

The company has been working on diversifying revenue streams to reduce volatility in the broking business by increasing contribution from distribution and investment banking. As a result, the contribution of brokerage business to overall revenue has decreased from 70 percent to 63 percent in five years to March 2017.

ICICI Securities is India’s largest brokerage by revenue and by investors and includes the retail broking arm ICICIdirect.com. The company derives about 90 percent brokerage revenue from the retail business.

Despite falling retail customer share—down from 94.3 in March 2013 to 89 percent in September last year—ICICI Securities has doubled its market share in the broking business in the last five years.

It was the second-largest non-bank distributor of mutual funds in India in the year through March 2017. The average assets under management of the mutual funds distributed by the company rose fivefold to Rs 29,384 crores since March 2013.

Financial Highlights

• Company’s profit after tax stood at Rs 337 crore in year to March 2017 against Rs 235.7 crore a year ago. The company had total assets of Rs 2,040 crore compared with Rs 1,392 crore a year ago.
• Its revenue rose at an annualised rate of 19 percent in four years through March 2017, while net profit grew at 47 percent.
• Cost-to-income ratio has improved to 63 percent from 85 percent in five years through March 2017 and 54 percent in December last year.
• For the nine months ended December, it reported a revenue and net profit of Rs 1,344.7 crore and Rs 400 crore, respectively.
• Earnings before interest, tax and depreciation and amortisation grew at CAGR of 39 percent, while Ebitda margin expanded by 18.6 percentage points in the last five years to 40.3 percent.
• The company has not raised capital from shareholders since the 2010-11.

Peer Comparison

Valuations

Annualised earnings per share works out to Rs 10.48 for the year ended March 2017. At the upper end of the price band, shares will trade at 49.6 times its earnings, according to BloombergQuint’s calculations.

What Brokerages Say

IDBI Capital

• Recommends ‘Subscribe’.
• Leading technology-based securities firm in India.
• Diversification of revenue to reduce volatile growth.

Kotak Securities

• Recommends ‘Subscribe’.
• Largest equity broker in India powered by their proprietary technology platform.
• Strong and growing distribution business with an ‘open-source’ distribution model.
• Presence across different segments to help explore new opportunities.

Centrum Wealth

• Recommends ‘Subscribe’ for long term.
• Company has maintained healthy return on equity of more than 30 percent since March 2013.
• Business cannot be compared with other brokerages due to its vast digital presence.
• Risk of high competition and reliance on revenue from broking business.

Prabhudas Lilladher

• Recommends ‘Avoid’.
• Slowly increasing focus in distribution segment to reduce cyclicality.
• Operates in highly competitive broking segment.
• High valuations despite less capital intensive business.

Ambit Capital (Not rated)

• Market share gain of about 90 basis points in five years through March 2017 in mutual fund distribution.
• Return on equity for the company has tripled over since March 2013.
• Higher EBITDA margins than brokers like Geojit and Motilal Oswal.
• Risks of increasing online competition in distribution.