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ICICI SECURITIES: Market share in Retail Brokerage improves

ICICI SECURITIES: Market share in Retail Brokerage improves

(ISEC IN, Mkt Cap USD2b, CMP INR507, TP INR640, 26% Upside, Buy)

• Revenue from ISEC’s Retail Broking business increased by 6% QoQ – the first sequential improvement in six quarters. The customer acquisition run-rate improved to 0.46m from 0.45m in 1QFY23. However, Prime subscription fees fell QoQ to INR269m. Revenue from Issuer Services improved 39% QoQ to INR488m, led by a recovery in Advisory activity.
• Overall revenue grew 8% QoQ to INR8.6b, 5% above our estimate as the strength in Retail Brokerage was offset by weak revenue from the Institutional segment (down 33% YoY). PAT fell 14% YoY to INR3b, above our estimate by 3%. C/I ratio fell to 53.4% (est. 52.5%) in 2QFY23.
• Our EPS estimates broadly remain unchanged. We retain our Buy rating with a TP of INR640 (based on 15x FY24E P/E).

Revenue from Retail Broking improves; client addition run-rate flattish

• Revenue from Retail Broking fell 17% YoY, but grew 10% QoQ to INR2.9b.
• Market share in the Retail Cash segment improved by 90bp QoQ to 10.6% and the same in the Derivatives expanded by 20bp to 3.7%.
• Revenue from the Institutional Equities segment declined by 9% YoY and 5% QoQ to INR391m in 2QFY23.
• ISEC added 462k new customers in 2QFY23 v/s 447k QoQ. The activation rate declined by 20% QoQ to 59%. The number of NSE active clients fell to 3.06m from 3.19m QoQ.

Interest and Distribution income drive revenue growth

• Interest income grew 27% YoY, but fell 3% QoQ to INR1.5b. The average MTF book fell sequentially to INR55b from INR58b, whereas its MTF market share expanded by 60bp to 23%. The ESOP book fell to INR11b from INR13b in 1QFY23 due to revised regulatory norms.
• Distribution revenue rose 5% YoY and 3% QoQ to INR1.6b, led by strong performance in the MF and Life Insurance segments. Others segment saw a sharp fall (down 18% QoQ). SIP count was steady at 1m. SIP flows have been falling sharply to INR11.9b in 2QY23 from INR12.4b/INR13.2b in 1QFY23/4QFY22.
• Revenue from Investment Banking grew 39% QoQ, but fell 33% YoY to INR488m.

Highlights from the management commentary

• New client additions will be maintained at 0.4-0.45m every quarter. However, short-term headwinds remain. The management aims to maintain market share at 7-7.5% in this parameter.
• Encouraging signs are visible: 1) active F&O customers grew 25% QoQ, 2) cash volumes are flat QoQ as against five consecutive quarters of a QoQ decline, and 3) SIPs are seeing increasing trends for the industry as a whole.