ICICI Securities June quarter results rained on by overcast broking biz

ICICI Securities’ financial performance for the June quarter was dragged down by a sharp fall in retail broking revenue, which fell 25 per cent year-on-year (YoY) and 19 per cent quarter-on-quarter (QoQ) to Rs 260 crore. The overall revenue still managed to grow 6 per cent YoY to Rs 790 crore on the back of higher-than-estimated interest income and distribution income.

Overall net profit fell 12 per cent YoY to Rs 270 crore due to an increase in employee and operating costs.

ICICI Securities’ client growth moderated to 27.7 per cent to 450,000, while active customers rose only 5.3 per cent QoQ to 3.2 million.

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Analysts say the pressure in the broking segment of ICICI Securities is an indication of the headwinds the entire industry faces as cash market volumes drop, client additions moderate, and active clients stagnate.

“There is clear moderation in the industry as regards growth in new demat accounts, National Stock Exchange active clients, and cash volumes. Cash volumes declined month-on-month within the first quarter of 2022-23 (FY23), indicating a weakening trend while entering the second quarter of FY23,” said a note by IIFL.

Since the entire broking industry is seeing a moderation in revenue, ICICI Securities is impacted more due to its higher dependence on the cash market segment.

“ICICI Securities has seen tough times in the recent past due to high linkage of its revenue to the broader equity markets. This has translated into a sharp decline in broking revenue as its dependence on cash volumes is relatively higher. Further, the primary issuances have slowed down materially,” said a note by Motilal Oswal.

As the outlook for the broking business remains cloudy, analysts have cut the financial estimates.

IIFL has lowered the revenue estimates by 4 per cent over FY23 and 2024-25.

Motilal Oswal has cut FY23 and 2023-24 (FY24) earnings estimates by about 2.5 per cent each.

Elara expects ICICI Securities to log net profit of Rs 1,031 crore in FY23 and Rs 1,200 crore in FY24 — sharply lower than Rs 1,383 crore reported in 2021-22 (FY22), which was a strong year for the broking industry.

Revenues, too, are expected to fall from Rs 3,348 crore in FY22 to Rs 2,964 crore in FY23 and Rs 3,187 crore in FY24.

Shares of ICICI Securities are down 40 per cent this year. Analysts say the sharp fall has priced in most negatives and the current valuations remain inexpensive.

“We believe a sharp drop in the stock price is already built into the business’ inherent cyclicality,” says Elara.

It has a price target of Rs 510 for the stock. This translates into 14x its FY24 earnings estimate — lower than the long-term valuation of 15x.

Given the company’s high linkage to the stock market, its revenue and stock price performance will hinge on how the markets perform over the next two years.