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Review By Dilip Davda on March 15, 2018

ICICI Securities Ltd. (I-sec) is a leading technology-based securities firm in India that offers a wide range of financial services including brokerage, financial product distribution and investment banking and focuses on both retail and institutional clients. It has been the largest equity broker in India since fiscal 2014 by brokerage revenue and active customers in equities on the National Stock Exchange (Source: CRISIL), powered by significant retail brokerage business, which accounted for 90.5% of the revenue from its brokerage business (excluding income earned on its funds used in the brokerage business) in fiscal 2017. As of December 31, 2017, ICICIdirect, its award winning proprietary electronic brokerage platform, had approximately 3.9 million operational accounts of whom 0.8 million had traded on NSE in the preceding 12 months (Source: NSE). Since inception, it acquired a total of 4.6 million customers through this platform as of December 31, 2017.

The financial savings environment in India has undergone a fundamental transformation in recent years. Strong macroeconomic factors such as growing gross domestic product, rising affluence, increasing formalization of economy, lower inflation and falling interest rates have contributed to the growing shift of household savings towards financial assets. Consequently, India is witnessing increasing retail and domestic institutional participation in Indian equity markets. The recent wave of digitization steered by the support and reforms by the Indian government and augmented by increasing Smartphone penetration and faster data speeds in India has resulted in positive changes in customer out-reach and consumer behaviour. However, activity in capital markets in India remains low compared to global markets as demonstrated by market capitalization to GDP ratio of 69% for India compared to global average of 99% in 2016 (Source: CRISIL). Being one of the pioneers in the e-brokerage business in India, along with its strong brand name, large registered customer base, wide range of products across asset classes, complimentary advisory services, position I-sec to be the natural beneficiary of the growth in digitization and resultant transformational changes in the Indian savings markets.

I-sec also distribute various third-party products including mutual funds, insurance products, fixed deposits, loans, tax services and pension products. All its businesses verticals are supported by its nationwide network, consisting of over 200 own branches, over 2,600 branches of ICICI Bank through which its electronic brokerage platform is marketed and over 4,600 sub-brokers, authorized persons, independent financial associates and independent associates as at December 31,2017.

To unlock value for stakeholders and listing purpose, I-sec is coming out with a maiden IPO of 77249508 equity shares of Rs. 5 each as Offer for Sale (OFS) via book building issue with a price band of Rs. 519 – Rs. 520 to mobilize Rs. 4009.25 cr. to Rs. 4016.97 cr. (based on lower and upper price bands). Issue opens for subscription on 22.03.18 and will close on 26.03.18. Minimum application is to be made for 28 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. I-Sec has reserved 3862475 (5%) shares for purchase by the ICICI Bank retail and HUF stakeholders who were on the books of bank as on 13.03.2018. Issue constitutes 23.98% of the post issue paid up capital of the company. BRLMs to this offer are BofA Merrill Lynch (DSP Merrill Lynch Ltd.), Citigroup Global Markets India Pvt. Ltd., CLSA India Pvt. Ltd., Edelweiss Financial Services Ltd., IIFL Holdings Ltd and SBI Capital Markets Ltd. Karvy Computershare Pvt. Ltd. is the registrar to the issue. Average cost of acquisition of shares by the selling stakeholder is Rs. 5.82 per share. On the net issue size, excluding ICICI Bank stakeholder reserved quota, I-sec has reserved 75% issue for QIBs, 15% for HNIs and 10% for retail investors. Post issue, I-sec paid up capital remains same at Rs. 161.07 crore.

On performance front, I-sec has (on a consolidated basis) reported revenue/net profits of Rs. 812.26 cr. / Rs. 89.19 cr. (FY14), Rs. 1209.51 cr. / Rs. 293.87 cr. (FY15), Rs. 1124.58 cr. / Rs. 238.72 cr. (FY16), Rs. 1404.23 cr. / Rs. 338.59 cr. (FY17). For first nine month of the current fiscal, it has earned net profit of Rs. 399.09 cr. on revenue of Rs.1344.69 cr. If suffered a setback for FY16 in line with general trends of the markets. Its entire equity is issued at par since inception. For last five fiscals, it has reported related party revenue of around 10% on an average in the total revenues. 40% of revenues are from non-broking business. Issue is priced at a P/BV of 25.05 based on its NAV of Rs. 20.76 (on consolidated basis) as on 31.12.17. For last three fiscals it has posted an average EPS of Rs. 9.25 and an average RoNW of 76.91%. If we annualize latest earnings and attribute it on post issue equity then asking price is at a P/E of 31 plus against industry average of 37 and its peers trading at a P/E of Edelweiss Fin. (184), IIFL Holdings (137), JM Fin. (78), Motilal Oswal (133) and Geojit Fin. (42) (as on 15.03.18). For last five fiscals, I-sec has posted CAGR of 18.8% in revenue and 47.4% CAGR in PAT. For first nine months it has posted growth of 31.5% and 56.3% respectively.

On BRLM's front, six merchant bankers associated with the offer have handled 55 public issues in the past three years out of which 14 issues closed below the issue price on listing date.

Update 22nd March 2018

Note: In my review, I gave comparison of P/E with listed peer. While checking in details, I found that P/Es shown by BSE is on standalone basis while other webs are giving on consolidated basis. Thus if we compare I-Sec on consolidated basis, then it appears fully priced and in that context, my conclusion still remains same as 'Subscribe for long term'. For information of views, latest P/Es (as on 21.03.18) for peers are Edelweiss (28), Motilal (32), IIFL Holdings (26), JMFin (18) and Geojit (33) and the industry average of (37).

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