Trading website icicidirect.com claims to bring investment to your fingertips. The platform is the front of brokerage firm ICICI Securities, which gets more than half its revenue from retail brokerage alone. Now it will add another investment to your fingertips—its own shares.
In doing so, ICICI Securities hopes that its existing customers (3.8 million of them) and others will be willing to bet on the profitability it derives by charging them brokerage and subscribe to the approximately 77 million shares it would sell through an initial public offering (IPO).
So what will investors get into if they buy the stock? The company is betting on getting a lift off from the shift in household savings to financial assets from physical assets in the aftermath of demonetization. Besides this, the strong performance of the capital markets in the last fiscal year has emboldened retail investors to open over 30 million demat accounts so far in 2017-18. That is a testament to the fact that the average Indian is picking stocks, bonds and mutual funds instead of real estate and gold and firms like ICICI Securities have the edge to capitalize on this. Add the strong pedigree of ICICI Securities and also good growth metrics, the IPO is sure to attract investors.
Being the largest brokerage firm in terms of active customers and brokerage revenue, the compounded annual growth rate of 19% in revenues during FY13-17 should not be taken lightly. But brokerage income is subject to the vicissitudes of capital markets. To counter this, ICICI Securities has been growing its non-brokerage income rapidly too, the share of which is now in excess of 30% of its total revenue.
Nevertheless, much of the response to the IPO depends on how the company stands vis-à-vis its peers in terms of valuation. ICICI Securities is valued at Rs16,750 crore at the upper end of the IPO price band of Rs519-520 which works out to about 30 times its estimated earnings per share for fiscal year 2017-18. The closest comparable firm, Motilal Oswal Financial Services Ltd, currently trades at a multiple of 29 times its earnings per share for fiscal 2017-18.
Unfortunately, the odds are stacked against the markets in the coming months with the dividends of a low interest rate regime and high liquidity coming to an end globally as well as locally. Maintaining the run rate of its revenue and income growth would be a challenge for the firm. To really win the heart of investors, ICICI Securities will have to show that it has risen above the vagaries of the market. Getting bids for the IPO may not be tough but getting them from the market after listing through icicidirect.com would be.