This ICICI Stock Surged 103.85% In 3 Years, Brokerage Sees 45% Potential Upside, Details Inside

HDFC Securities in its research report on ICICI Securities published on July 22, last week, has estimated a target price of Rs 675 apiece for the stock of the company. According to the brokerage, if the investors buy the shares of the company at the Current Market Price, they could expect potential gains of 45% in 12 months. ICICI Securities is a mid-cap ICICI group stock engaged in stock broking & financial businesses. It has a market capitalization of Rs 15,031.55 crore.

Stock Outlook & Returns

On July 25, the stock of the company closed at the Current Market Price (CMP) of Rs 465.70 apiece after a fall of 2.01% from the previous close of Rs 474.55 apiece.

In the past 1 week, the shares of the company moved up by 2.45% and 6.8% in 1 month, respectively. However, its share price has fallen nearly 35.81% in the past 1 year. In 3 years, its share price has gained 103.85%.

The stock hit the 52-week low on May 26, 2022, at Rs 408.40 apiece. The 52-week high was recorded on October 13, 2021, at Rs 896.05 apiece. Its ROE is 58.88% and its PE ratio is 11.17. The dividend yield is 5.15 and the face value is Rs 5.

Slowdown across segments

Total broking revenue, at Rs 5.1bn (-9% QoQ), was 3% below estimates, primarily because of a 11% miss on pure broking revenues, partly offset by strong growth in transactional charges under the NEO plan. After five quarters of weak trends, pure broking revenues de-grew 19% sequentially, as cash volume declined 20% QoQ, reflecting in lowest-ever blended yields at 0.31bps (-13bps QoQ). Growth in the average MTF + ESOP book was impressive (-2% QoQ) and much ahead of pure broking revenue, suggesting that clients on the prime and NEO plans are leveraging heavily, albeit not translating into broking revenue on account of lower rack rates. Retail market share in cash segment dipped 28bps to 9.7%; however, ICICI Securities arrested market share erosion in the derivative segment, which stabilised at 3.5% (+16bps). Client acquisition run-rate decelerated in line with industry at 416k (Q4FY22: 589k); however, customer quality and monetisation remain a major concern. Softer primary issuances dragged advisory service revenue 46% QoQ to Rs 0.35bn.

Margins under pressure

Tight control on marketing and discretionary spends drove operating expenses down 14% sequentially; management stated that tech spends have been selectively calibrated to navigate weak capital markets and sustain medium-term EBITDA margins. However, higher-than-estimated staff costs alongside slowdown in revenue dragged adjusted PAT to Rs 2.76bn (-19% QoQ, -5% vs. estimates). ISEC has tied up with Chola Finance to originate ESOP funding on a shared-spread basis; we believe this is compliant with the RBI's circular capping ESOP funding at Rs 2mn per borrower. The management also highlighted that the new mobile app is expected to be launched in FY23E.

Valuation & Views

The brokerage said, "ICICI Securities Ltd printed de-growth (-19% QoQ) in pure broking revenue on a weak base (Q4: -5% QoQ), as cash volumes plunged 20% sequentially (illustrating the dependence on cash volumes). We draw comfort from ISEC's renewed focus on building digital capabilities; however, given the high dependence on cash delivery volumes and tech-based handicap, we believe that its revenues will remain cyclical and face headwinds from the new-age FinTech brokers."

"We cut our FY23/24E APAT estimates by 4/8% to build in weak cash volumes, pressure on broking yields, and drag from staff costs in the medium term. Given the healthy retail participation and attractive valuation, we maintain our positive stance on ISEC; however, we trim our target multiple to 17.5x (from 20x) as we roll forward our earnings to Mar-24E (from Sep-23E) and maintain ADD with a revised target price of Rs 675," the brokerage added.

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.