This midcap is up 100% since March lows, and analysts say it’s still in a bull market

This midcap is up 100% since March lows, and analysts say it’s still in a bull market

NEW DELHI: Analysts say the ICICI Securities stock is in a sweet spot. The stock price has doubled from its March low. December quarter profits too almost doubled. The brokerage added a record number of new customers during the December-September period. Adding a cherry on top, analysts say this may just be a start of a new growth phase for the company.

Some analysts say the stock may deliver up to 57 per cent returns in next one year, riding on cost cutting and continued business growth. The launch of new competitive products has also helped the business.

“Digital sourcing and launch of new products such as NEO and IDirect Money has led to better customer acquisition and activation of existing customers. The company has added 1.39 lakh customers, which was the highest addition in a quarter,” said Vidhi Shah, analyst at Antique Stock Broking.

The brokerage has managed to maintain growth in income from mutual fund distribution and despite the industry seeing heavy redemption pressure during the quarter, ICICI Securities gained market share in SIP flows. Non-mutual fund income also has also made a comeback after a few quarters of subdued performance, analysts point out.

“The intense consolidation in the brokerage industry coupled with ICICI Securities’ multi-dimensional strategy of acquiring more customers and selling more products per customer can reduce business cyclicality and open up a long runway for growth,” said Shah, who has a ‘buy’ rating on the stock with price target at Rs 603.

On Friday, the scrip traded higher at Rs 408 on BSE in a weak market.

MD and CEO Vijay Chandok has very high ambitions, and the recent business growth plays right into the narrative. “We are confident of maintaining the momentum on the back of increased traction on digital sourcing channels… we are investing in technology, digitization and fortifying the talent pool. We aim to remain the digital financial supermarket of choice and a go-to platform for sustainable wealth creation by meeting all the financial lifecycle needs in investments, protection and borrowing,” he said.

Alpesh Mehta, a research analyst at Motilal Oswal, said the company’s cost-to-income ratio, which came in at 42 per cent, surprised positively. It improved 300 bps QoQ and 1,400 bps YoY to the lowest ever, driven by about one-third reduction in employee expenses.

This cost cutting bodes well for the company, which operates in an extremely competitive industry with multiple players, who provide services virtually free. They also include some technologically superior discount brokerages.

“Changes in ICICI Securities’ product and sourcing strategies have yielded results over the past 1–2 years. Given the intense competition in the sector, this is likely to continue in the foreseeable future,” Mehta said.

“Its path to improvement in profitability is attributable to its cost-cutting initiatives, which it has been executing very well. We upgrade our EPS estimates for FY22-FY23 by 8-9 per cent for a price target at Rs 650,” he said.

Yet, there are some business concerns which, analysts say, can disrupt the momentum. Discount brokers acquiring higher client share, being close to peak earnings due to cyclicity and newly introduced peak margin rules are some of them.

“With the part implementation of the peak margin rule, ICICI Securities lost 250 bps QoQ in derivative market share. This loss was stark at 460 bps MoM in December, 2020. We remain wary of the impact of the successive phases of peak margin regulations on the overall trading activity,” said Madhukar Ladha and Sahej Mittal at HDFC Securities. They have a price target of Rs 560.

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