Has ICICI Securities found a magic formula to beat margin rule impact?

NEW DELHI: Thanks to robust client addition and more cash delivery, India’s largest traditional broker more than doubled net profit during the March quarter. The company was virtually unaffected by Sebi’s new margin rules.

Analysts tracking the company remain positive in outlook and see up to 35 per cent upside in the stock. Most of them have ‘buy’ ratings on the scrip. The stock gained nearly 5 per cent in Mumbai trading on Thursday.

“Despite loss in market share on a QoQ basis, the company posted strong revenue growth of 16 per cent QoQ in the brokerage segment. This was possible because business reduced in the low-yield intraday segment but continued to do well in the high yield cash delivery segment,” said analysts at Nirmal Bang.

Consolidated net profit for Q4 came in at Rs 329 crore versus Rs 156 crore in Q4 of FY20, up 111%, on account of growth in revenue and better margins, the company said. The firm declared a final dividend of Rs 13.50 per share, amounting to Rs 21.50 per share for FY21.

The twin margin rules – which were seen as the biggest threat to the company’s earnings and have significantly affected discount brokers – do not seem to have had much impact on its numbers.

“The second phase of the new margin rules started in March. Despite this, average daily turnover (ADTO) in equity in March stood at the same level as it was in November (before the new rules), while ADTO in derivatives came in higher than that in November. However, there was a decline in March compared with February numbers,” Nirmal Bang said.

ICICI Securities has a client base of 54 lakh, of which 3.5 lakh got added in March quarter, the highest ever addition for the company in a quarter. It benefited from higher retail participation, market commentators said.

Global brokerage CLSA said the company had a strong quarter. Valuation at which it trades is ‘undemanding’ with a 5 per cent dividend yield, the Hong Kong-based broker noted.

“We increase our earnings estimates by 16-18 per cent to reflect the earnings beat. With normalisation of capital market activity in FY22, we expect earnings to normalise in FY22-23, a 5-10 per cent drop over FY21,” said Adarsh Parasrampuria of CLSA.

He has a ‘buy’ rating on the stock with a price target of Rs 575, implying a potential upside of 35 per cent from last closing price of Rs 424.

Analysts also believe the company’s focus on next generation technology and consumer-focused products should augment its earrings. ICICI Securities is looking at the customer as an avenue for cross-selling multiple products over the next many years, and not as a trading brokerage generator in the immediate term, as is the approach being adopted by the new discount brokers, said an analyst.

“We are focused on executing our strategy to digitally and seamlessly delivering highly personalised and relevant products and solutions to our customers. Towards this, we are investing in building capabilities to cater to the rapidly growing segments like the millennials and GenZ, which the company has started attracting in large numbers,” claimed Vijay Chandok, Managing Director and Chief Executive Officer, ICICI Securities.

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