thave been under pressure for the last few months. In the current calendar year, the stock has fallen 46 percent while from its 52-week high level of ₹895.60, which it hit on October 13, 2021, the stock has declined over 52 percent.
In its fresh report on July 5, global brokerage firm CLSA downgraded the stock to an 'underperform' from an 'outperform' while cutting the target price by 37.5 percent to ₹450 from ₹720.
"We downgrade from O-PF to U-PF and our target price falls from ₹720 (16 times FY24 EPS) to ₹450 (12 times FY24 EPS)," CLSA said.
The downgrade by CLSA is premised on a fall in cash equity trading volumes and a rise in futures and options (F&O) volumes.
"Over the past six months, we have been highlighting the dichotomy in trading volumes, with cash equity trading volumes being flat-to-marginally down while futures and options (F&O) volumes consistently rising. Such a scenario is negative for traditional brokers like ICICI Securities (ISEC) whose revenue depends primarily on cash volumes," CLSA explained.
"Our channel checks suggest that cash volumes have further corrected about 20 percent month-on-month (MoM) in June. We cut our revenue estimates for FY23-25 by 8-11 percent due to lower broking and allied income, leading to EPS estimate cuts of 13-18 percent. We are now 15-20 percent below consensus," said CLSA.
CLSA underscored as the broader indices have declined and volumes have been weak, there is an impact on other revenue streams too. For example, margin trade finance (MTF) for the industry has declined from a peak of ₹28200 crore in April to ₹23200 crore in June.
"MTF has been a big revenue growth driver for ISEC - the share of interest income in total revenues increased from 13-14 percent pre-Covid to 24 percent in Q4FY22. This, along with the rising cost of short-term debt, should impact ISEC’s net interest income over the next few quarters. Similar, we also cut our investment banking and mutual fund
distribution revenue estimates by 3-8 percent for FY23," CLSA said.
The company's booking revenue has been rangebound even as it took initiatives on the product and sourcing front which helped in client acquisition. Now, the macro headwinds are also likely to add further pressure to the company's growth.
"Over 2019-21, ISEC took several good initiatives on the product and sourcing front. While this bore fruit in terms of client acquisition (NSE active client count up nearly 3 times over FY20-22), there has not been much impact on broking revenue. Retail broking revenues jumped 40 percent in the first two-quarters of Covid but have been range-bound ever since, despite growth in client count," CLSA said.
"A gloomy macro environment is likely to chase many fly-by-night retail investors/traders away, leading to further revenue pressure. While the stock is inexpensive at 12 times EPS, we see no trigger for a rerating and believe there could be downside pressure if consensus cuts estimates. We are 15-20 percent below consensus on FY23-25 PAT. Upside risks include a pick-up in trading volumes," CLSA added.
Disclaimer: The views and recommendations made above are those of the broking firm and not of MintGenie.
