ICICI Securities IPO – What are the hidden factors?
This month is going to be flood of IPOs in India. ICICI Securities IPO for Rs 4,000 Crores would open for subscription on 22nd March, 2018. They are a leading technology-based securities firm in India which offers demat services, mutual fund services and all other investment products. ICICI Securities revenues grew at 19% CAGR in the last 5 years. Its profits are on increasing mode from FY2013 to FY2017. What are positive factors in IPO of ICICI Securities Limited? What are the hidden factors in ICICI Securities IPO? Should you invest in ICICI Securities IPO when there are flood of IPOs at the same time. Let me provide some insights about this IP O and to the review.
About ICICI Securities Ltd
They are 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. They have been the largest equity broker in India since fiscal 2014 by brokerage revenue and active customers in equities on the National Stock Exchange, powered by its significant retail brokerage business, which accounted for 90.5% of the revenue from its brokerage business (excluding income earned on our funds used in the brokerage business) in fiscal 2017. As of December 31, 2017, ICICIdirect, 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, we acquired a total of 4.6 million customers through this platform as of December 31, 2017.
ICICI Securities IPO Issue details
IPO opening date: 22-March-2018
IPO closure date: 26-March-2018
Face Value: Rs 5 per share
Issue price band: Rs 519 to Rs 520 per share.
Issue size: Approx. Rs 4,000 Crores on higher price band
IPO Lot size: 28 shares and 28 shares there-off
Minimum investment: Rs 14,560 on higher price band
Leading Managers: BoFA Merrillynch, Citi Global Markets, CLSA India, Edelweiss Financial Services, IIFL Holdings, and SBI Capital Markets.
Listing: BSE / NSE
Objects of the ICICI Securities Limited IPO issue
The Issue has Fresh Issue by the Company and an Offer for Sale by the Selling Shareholders.
1) Offer for Sale: Company will not receive any proceeds of the Offer for Sale by the Selling Shareholder (ICICI Bank).
2) To achieve the benefit of listing the Equity Shares on the Stock Exchanges. Further, the Company expects that the listing of Equity Shares will enhance its visibility and brand image and provide liquidity to its existing shareholders.
ICICI Bank Ltd is the promoter of the company. ICICI Bank currently holds 100% of the pre-Offer issued, subscribed and paid-up Equity Share capital of the company.
Company Financials (reinstated-Consolidated)
1) The company generated revenue of Rs 705.8 Crores for the year ended Mar-13 and Rs 1,404.2 Crores for the year ended Mar-17. Revenues for 9 months ended Dec-2017 was Rs 1,344 Crores.
2) The company posted a profit of Rs 71.7 Crores for the year ended Mar-13 and profit of Rs 338.5 Crores for the year ended Mar-17. Profits for 9 months ended Dec-17 was Rs 399 Crores.
3) Its FY17 EPS is Rs 10.5 and the last 3 years average EPS is Rs 9.25. It’s EPS for 9 months ended Dec-2017 is Rs 12.39.
Company Financials (reinstated-Standalone)
1) The company generated revenue of Rs 704.9 Crores for the year ended Mar-13 and Rs 1,403.9 Crores for the year ended Mar-17. Revenues for 9 months ended Dec-2017 was Rs 1,344.6 Crores.
2) The company posted a profit of Rs 75.6 Crores for the year ended Mar-13 and profit of Rs 337.6 Crores for the year ended Mar-17. Profits for 9 months ended Dec-17 was Rs 398.3 Crores.
3) Its FY17 EPS is Rs 10.48 and the last 3 years average EPS is Rs 8.94. It’s EPS for 9 months ended Dec-2017 is Rs 12.36.
What are the key strengths of ICICI Securities Limited?
Here are the key strengths of the company.
1) Largest Equity Broker in India Powered by its Proprietary Technology Platform: ICICIdirect.
2) Natural Beneficiary of Fundamental Transformation in the Indian Savings Environment.
3) Strong and Growing Distribution Business with an “Open-Sitsce” Distribution Model.
4) Superior Customer Experience through Product and Technology Innovation.
5) Strategic Component of the ICICI Ecosystem.
6) Leading Institutional Platform.
7) Strong Financial Performance with Significant Operating Efficiency.
8) Experienced Senior Management Team.
What are the Strategies of ICICI Securities Ltd?
Here are the key strategies of the company.
1) Strengthen its Leadership Position in the Brokerage Business.
2) Continue Investing in Technology and Innovation.
3) Strategically Expand its Financial Product Distribution Business Through Cross-Selling.
4) Leverage its Leadership in Equity Capital Markets to Strengthen its Financial Advisory Businesses.
5) Diversify its Revenue Streams and Continue Reducing Revenue Volatility.
Reasons to invest in ICICI Securities IPO
1) Strong revenue growth of 19% CAGR in the last 5 years
2) Its profits are on increasing mode. Its FY2013 margins were at 10.7% Vs. FY2017 at 24%. Even for 9 months ended Dec-2017 its margins has increased to 29.6%. Increase in profits always rewards investors.
3) Well-known brand of ICICIDirect among investors who trade in stocks, invest in mutual funds and in IPOs.
Risk Factors / Reasons not to invest in an ICICI Securities IPO
1) General economic and market conditions in India and globally could have a material adverse effect on its business, financial condition, cash flows, results of operations and prospects.
2) They are subject to extensive statutory and regulatory requirements and supervision, which have material influence on, and consequences for, its business operations.
3) They rely heavily on its relationship with ICICI Bank for many aspects of its business, and its dependence on ICICI Bank leaves them vulnerable to changes in its relationship.
4) The operation of its businesses is highly dependent on information technology and we are subject to risks arising from any failure of, or inadequacies in, its IT systems.
5) They rely on its brokerage business for a substantial share of its revenue and profitability. Any reduction in its brokerage fees could have material adverse effect on its business, financial condition, cash flows, results of operations and prospects.
6) Company, some of its Directors, its Promoter and certain Group Companies are involved in certain legal and other proceedings.
7) They may fail to detect money laundering and other illegal or improper activities in its business operations on a timely basis.
8) There are operational risks associated with the financial services industry which, if realized, may have a material adverse effect on its business, financial condition, cash flows, results of operations and prospects.
9) Other risk factors (Internal and external) can be viewed in the red hearing prospectus (RHP).
Recommendation / Investment strategy – ICICI Securities IPO
1) On the upper price band of Rs 520 and on restated standalone FY17 EPS of Rs 10.48, P/E ratio works out to 49.6x. Even based on last 3 years standalone restated EPS of Rs 8.94, P/E ratio works out to 58.1x. Since 9 months ended Dec-17 is high, even if we annualise that, P/E works out to be 31x. Their peer like Motilal Oswal Financial trading at 45.2x (Highest) and JM Financials at 22x (Lowest) and industry average is 37x. Means company asking price of Rs 520 at P/E of 31x to 49.6x is fully priced.
2) Company posted strong revenue growth at 19% CAGR in the last 5 years. It earns decent profits which are growing year on year. Its issue price is also fully priced. Considering strong brand and positive factors, high risk investors can invest with 2-3 years tenure. Investors may or may not get listing gains. Alternatively, investors can wait for some correction and invest in these shares if they are available at discounted price post listing.
Disclaimer: I have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.
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ICICI Securities IPO – What are the hidden factors