ICICI Securities IPO opens: Should you subscribe?

ICICI Securities, a leading securities firm in India, is coming out with its initial public offering (IPO) to raise Rs 4000 crore. The issue is scheduled to open on March 22, and close on March 26, 2018.

The price band of the issue is Rs 519-520 per equity share of the company of face value of Rs 5 each.

The IPO consists of offer for sale of equity shares aggregating up to 7.72 crore equity shares of the company by the promoter - ICICI Bank. Of the total issue, 39 lakh shares are reserved for the shareholders of ICICI Bank.

The bids can be made for a minimum of 28 equity shares.

The company offers a wide range of financial services including brokerage, financial product distribution and investment banking and focuses on both retail and institutional clients.

IIFL Holdings, BofA Merill Lynch, Citi, CLSA, Edelweiss, SBI Capital Market are the book running lead managers to the offer. The registrar to the offer is Karvy Computershare.

Also Read - ICICI Securities IPO to open on March 22; 10 key things you should know before investing

The share is going to list on Bombay Stock Exchange (BSE) and National Stock exchange (NSE).

Brokerage: IIFL | Rating: Subscribe

ICICI Securities command a proven track record of strong financial performance. During FY14-17 the company saw its revenues soar at a near 20 percent CAGR and PAT grow at close to 56 percent CAGR. The revenues and PAT for 9MFY18 stand at Rs 13447 million and Rs 3991 million respectively.

The key risk includes, the company primarily trades in listed equity and fixed income securities for its own account. The performance of the proprietary trading business depends on market conditions and the company's investment decisions and judgements.

Brokerage: Way2wealth | Rating: Subscribe

At the price band of Rs 519-520 the issue is priced at 34.8x its TTM-Dec-17 earnings and 24.8x its book value as on Dec-17.

The company has delivered exceptional sales and PAT CAGR of 20% and 56% over the past 3 years with return on equity ratios in excess of 30% for each year since FY13 and far superior compared to listed peers.

The issue is priced at a premium compared to its peers, we believe it limits the scope of gains in the short term and hence advise investors with a long-term investment horizon to subscribe to the issue.

Brokerage: Centrum | Rating: Subscribe for long term

ICICI Securities offers a wide range of financial services including brokerage, financial product distribution and investment banking and focuses on both retail and institutional clients.

The business of ISec cannot be exactly compared to other brokerages due to their vast digital footprint that aids maximum revenue for the company compared to other brokerages which are relatively gaining more from branch based business.

Given the high valuations, investors can subscribe to the issue from a long term perspective. It must be noted that since the issue is being offered at expensive valuation, listing gains may be capped.

Brokerage: Prabhudas Lilladher | Rating: Avoid

The company's business is highly dependent on economic and political conditions in India. Global economic and political conditions may also adversely affect the Indian economic conditions.

Brokerage business, which accounts for a significant portion of its revenue, is highly dependent upon the levels of activity in the securities markets in India.

At upper band of Rs 520, company will trade at 34x FY18E EPS of Rs 15 and 25x FY20E EPS of Rs21 which we believe is quite overpriced for its cyclical (equity) broking business which accounts for significant portion of its revenues. We recommend investors to avoid the issue.

Brokerage: SSJ Finance | Rating: Avoid

The company faces intense competition in its businesses, which may limit its growth and prospects. It relies on 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.

We believe IPO is fairly valued giving little upside to investor. Hence, we recommend to avoid the IPO.

Brokerage: Choice Broking| Rating: Subscribe with caution

All the positives are already being factored in and there is a limited upside potential post listing. However, considering the growing equity cult in India, its positioning in the equity market, scalable and asset light business model, strong financial and return ratios and health dividend payout, we assign a subscribe with caution rating to the issue.

Brokerage: SPA Securities | Rating: Subscribe

ICICI securities is a direct beneficiary of the activities in the capital market business which has experienced an improved macro environment, shift from physical assets to financial assets and stable government and its policies.

However, declining customer/revenue market share, increase in online competition in distribution, declining 3-in-1 account penetration and regulatory changes are the key risk the company faces. At the upper price band of Rs 520 per share, the stock is being valued at 31.5x 9M FY18 annualized earnings.

Brokerage: SMC | Rating: 2.5/5

Being one of the pioneers in the e-brokerage business in India, along with its strong brand name, large registered customer base, wide range of products across asset classes, complimentary advisory services, and the company is sure to get benefit of the growth in digitization.

Considering the P/E valuation on the upper price band of Rs.520 EPS and P/E of Estimated Annualised FY2018 are Rs.16.52 and 31.48 multiple respectively and at a lower price band of Rs 519, P/E multiple is 31.42.