March 21, 2018 IPO - Note

ICICI Securities
Recommendation: SUBSCRIBE

BFSI

ICICI Securities is 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
NSE (Source: CRISIL), powered by their significant retail brokerage business, which accounted for 90.5% of the revenue
from the brokerage business (excluding income earned on the funds used in the brokerage business) in FY17. As of 9M
FY18, ICICI direct, an 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).

Issue Snapshot
Investment Rationale
Largest Equity Broker in India Powered by the Proprietary
Issue Open: 22-Mar-18 Technology Platform: ICICI direct
Issue Close: 26-Mar-18 ICICI Securities has been the largest equity broker in India since FY14
Price Band INR 519 - 520 by brokerage revenue and active customers in equities on NSE (Source:
CRISIL), powered by their significant retail brokerage business. Retail
Issue Size (mn) INR 40092 - 40170 customers accounted for 89.1% of the revenue from the brokerage
Market Cap (mn) INR 167514 - 167514 business (excluding income earned on funds used in the brokerage
business) in FY13, FY14, FY15, FY16 and FY17 and 9M18 respectively.
As of December 31, 2017, the company had 0.8 million active customers
who had traded on the NSE in the preceding 12 months (Source: NSE).
Particulars Natural Beneficiary of Fundamental Transformation in the Indian
Fresh Issue (No. of shares) (mn) 0 Savings Environment
OFS Issue Size (No. of shares) (mn) 77 India has historically been and is expected to continue to be a high
QIBs 71%
savings economy with household savings as a proportion of GDP at
approximately 19% in 2016, as compared to 9% in USA, 6% in Brazil and
Non-institutional 14% a global average of 9% in 2016 (Source: EIU). Household savings are
Retail 9% increasingly shifting from physical assets to financial assets. The share
of financial savings as a proportion of household savings has increased
steadily from 31.1% in fiscal 2012 to 41.5% in fiscal 2016. The share of
financial savings is likely to rise further, as stable inflationary trend is
Capital Structure generally expected to diminish the behavior of physical savings such as
Pre Issue Equity (INR Mn) 1611 investments in gold and real estate. In the past, positive real income
growth and low inflation have had a positive effect on financial savings.
Post Issue Equity (INR Mn) 1611
Strong and Growing Distribution Business with an "Open-Source"
Bid Lot 28 Distribution Model
Minimum Bid Amount @ 14532 The company has adopted an "open-source" distribution model with
Maximum Bid Amount @ 14560 respect to all the distribution products, except insurance products,
pursuant to which it does not distinguish between the third-party partners
whose products they distribute based on affiliation. They also provide
the customers with recommendations of mutual funds based on various
Shareholding Pattern (%) Pre Issue (%) Post issue (%) qualitative and quantitative parameters. As a result of these factors,
ICICI Securities are the 2nd largest non-bank distributor of mutual funds
Promoters 100% 76% in India, in terms of the revenues from such distribution of mutual funds,
Others 0% 24% in FY17 (Source: CRISIL). In addition, the product portfolio enables the
customers to manage their investments across multiple asset classes.
Outlook & Valuation
ICICI Securities, India's largest retail broker has seen a revenue
Particulars growth of ~15% CAGR from FY15-FY18 (on annualized FY18E
Face value 5 revenue) as the broking industry in India witnessed high growth
FY18 P/E* 31.5 in terms of increase in new accounts, higher income from
distribution business and sharp rise in primary market
*Upper band/ annualised transactions in the last 2 years. It has a capital light business
model which is reflected by its high average ROE of ~70% since
FY15. ICICI securities is a direct beneficiary of the activities in the
capital market business which has experienced an improved
Objects of the issue macro environment, shift from physical assets to financial assets
Offer For Sale (OFS) (INR Mn) 40170 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 INR 520 per share, the stock is being valued at
31.5x 9M FY18 annualized earnings. We recommend SUBSCRIBE
to the issue for long term investment.

Siddhesh Mhatre
siddhesh.mhatre@spasec.in 1
Ph. No. 91 22 4289 5600/ Ext. 214
 BFSI

Overview Revenue Mix for last 5 Years

ICICI Securities is 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 NSE (Source: CRISIL),
powered by their significant retail brokerage business, which
accounted for 90.5% of the revenue from the brokerage business
(excluding income earned on the funds used in the brokerage
business) in FY17. As of 9M FY18, ICICI direct, an 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, they have acquired a Investment Rationale
total of 4.6 million customers through this platform and have an Largest Equity Broker in India Powered by the Proprietary
established track record of delivering consistent returns to Technology Platform: ICICI direct
shareholders. PAT was INR 717.5 mn, INR 891.9 mn, INR 2,938.7 mn, ICICI Securities has been the largest equity broker in India since
INR 2,387.2 mn, INR 3,385.9 mn and INR 3,990.9 mn in FY13, FY14, FY14 by brokerage revenue and active customers in equities on
FY15, FY16, FY17 and 9MFY18 respectively, and the ROE has exceeded NSE (Source: CRISIL), powered by their significant retail brokerage
30.0% for each measured period since FY13. FY17 ROE was 69.2%.
business. Retail customers accounted for 94.3%, 93.2%, 93.0%,
Evolution to ICICI Securities 91.9%, 90.5% and 89.1% of the revenue from the brokerage
Year Events business (excluding income earned on funds used in the
1995 Incorporated as ICICI Brokerage Services Ltd.
2000 Launched online trading platform - ICICIdirect. brokerage business) in FY13, FY14, FY15, FY16 and FY17 and
2001 Launched online mutual funds platform 9M18 respectively. As of December 31, 2017, the company had
2002 Launched derivatives, Direct Link and 'Buy Today, Sell Tomorrow' 0.8 million active customers who had traded on the NSE in the
2005 Expanded through ICICIdirect branches
2006 ICICI Web Trade merged with ICICI Brokerage Services Ltd.
preceding 12 months (Source: NSE). ICICI Securities were also
Launched distribution of health and life insurance products one of the pioneers in the e-brokerage business in India, having
2007 Launched overseas trading services started offering online, real-time execution of trades on stock
2009 Launched online currency derivatives and private wealth
management services
exchanges in fiscal 2000 through ICICI direct. ICICI direct, which
2010 Preferential allotment of shares to ICICI Bank (500 mn shares). is the award-winning proprietary electronic brokerage platform,
Launched SIP product in equity. provides approximately 3.9 million customers (as at December
2011 Launched life time prepaid brokerage plans.
31, 2017) access to a wide range of products and services. Their
2017 Launched investment in AIFs on a private placement basis on
ICICIdirect, margin trading facility, funding of employee stock electronic brokerage platform is backed by robust infrastructure
option schemes. and has processed, at peak usage, over 1.9 million orders and
Revenue trades in a day. The IT infrastructure underlying the electronic
ICICI Securities is the largest Indian broker, based on brokerage brokerage platform is designed with redundancy in mind and
revenue since fiscal 2014. The following table sets forth the brokerage has a three-tier disaster recovery process. The electronic
revenue for the top five brokers (in FY17) which have publicly disclosed brokerage platform is built using a plug-and-play architecture
their brokerage revenue for the periods mentioned therein: so that it can be easily integrate the platform with the internal
Revenue (INR mn) FY14 FY15 FY16 FY17 systems and the systems of third parties whose products the
ICICI Securities 4,960 7,554 6,607 7,759 company distributes. As of 9M FY18, the company has integrated
Kotak Securities 3,439 5,917 5,719 7,424 the electronic brokerage platform with the systems of over 25
Motilal Oswal 2,648 4,449 4,510 5,516
third-party product providers, including depositories, exchanges
India Infoline 3,233 4,726 4,254 4,412
and credit bureaus. The risk management systems are also fully
HDFC Securities 2,039 3,374 3,116 4,211
Others 66,424 101,608 92,862 110,478
integrated with the electronic brokerage platform, which allows
Total 82,743 127,628 117,068 139,800 the company to manage their risks in real time, including through
automated changes in margin requirements by tracking trigger

2

prices for every client position with a margin. These integrations
give the company the capability to be the first in the market to
offer emerging products, such as NPS policies online, and to
offer more competitive prices and better features.
Natural Beneficiary of Fundamental Transformation in the Indian
Savings Environment
The Indian economy is the fourth largest economy in the world
in terms of GDP at purchasing power parity, with an estimated
GDP, in purchasing power parity terms, for 2016 of approximately
US$8.70 trillion (Source: CIA World Factbook, as of November
14, 2017). Further, India has historically been and is expected to
continue to be a high savings economy with household savings
as a proportion of GDP at approximately 19% in 2016, as
compared to 9% in USA, 6% in Brazil and a global average of 9%
in 2016 (Source: EIU). Household savings are increasingly shifting
from physical assets to financial assets. The share of financial
savings as a proportion of household savings has increased
steadily from 31.1% in fiscal 2012 to 41.5% in fiscal 2016. The
share of financial savings is likely to rise further, as stable
inflationary trend is generally expected to diminish the behavior
of physical savings such as investments in gold and real estate.
In the past, positive real income growth and low inflation have
had a positive effect on financial savings. According to CRISIL
Research, the yields on 10-year Indian Government securities
have reduced from 7.4% in April 2016 to 6.9% in October 2017
(Source: RBI). This falling interest rate cycle has helped channel
higher investments towards equity instruments. Strong brand
name, large registered customer base, wide range of products
across asset classes and complimentary advisory services
positions the company to be the natural beneficiary of these
transformational changes in the Indian savings markets. From
FY14 to 9M FY18, the number of brokerage and distribution
customers who had operational accounts increased from
approximately 2.1 million to 3.9 million, respectively, of whom
approximately 0.5 million and 0.8 million, respectively, had
traded on NSE in the preceding 12 months. Average daily turnover
for cash equity and equity derivatives traded by the customers
(i.e. excluding any proprietary trading) increased from fiscal
2013 to the nine months ended December 31, 2017, at a CAGR of
59.9% as compared to the corresponding market ADTO which
increased at a CAGR of 37.4% (Source: CRISIL, SEBI). There has
also been a growth in digitization recently caused by a significant
push and reforms by the Indian government. This trend has been
further augmented by increasing Smartphone penetration and
faster data speeds in India (Source: CRISIL). With the experience
as one of the pioneers in the e-brokerage business in India and
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BFSI
the electronic brokerage platform, the company is well-
positioned to benefit from the increasing trend in digitization as
more financial transactions are performed online. In FY17, over
95% of the brokerage transactions, by notional value, and over
90% of the mutual fund transactions, by number of transactions,
performed by the customers were online.
Strong and Growing Distribution Business with an "Open-Source"
Distribution Model
ICICI Securities have a strong and growing distribution business,
where we distribute third-party mutual funds, insurance
products, fixed deposits, loans and pension products to the retail
customers for commission income. Revenues from the
distribution business have increased from INR 1.62 bn in FY13
to INR 3.5 bn in FY17 and were INR 3.3 bn in 9M FY18. Revenue
from the distribution of third-party mutual funds accounted for
36.7%, 47.3% and 60.7% of the revenue from the distribution
business in FY13, FY17 and 9M FY18, respectively.
The company has adopted an "open-source" distribution model
with respect to all the distribution products, except insurance
products, pursuant to which it does not distinguish between the
third-party partners whose products they distribute based on
affiliation. They also provide the customers with
recommendations of mutual funds based on various qualitative
and quantitative parameters. As a result of these factors, ICICI
Securities are the 2nd largest non-bank distributor of mutual
funds in India, in terms of the revenues from such distribution
of mutual funds, in FY17 (Source: CRISIL). In addition, the product
portfolio enables the customers to manage their investments
across multiple asset classes.
The distribution business is supported by the nationwide
network, consisting of over 200 branches and over 4,600 sub-
brokers, authorized persons, IFAs and IAs as on 9M FY18. The
network enables them to augment the reach of the electronic
brokerage platform and also provides with a way to drive trading
volume to the electronic brokerage platform.
Strategic Component of the ICICI Ecosystem
ICICI Securities are the sole equity securities arm of the ICICI
Group. As a strategic component of the ICICI Group ecosystem,
they have mutually beneficial agreements with various
companies in the ICICI Group. In addition to the access to ICICI
Bank branches for the purposes of customer acquisition, they
are a key partner of ICICI Bank since they are currently the only
broker that allows the customers of ICICI Bank to trade in equity
securities using a "3-in-1 account" facility linked to their existing
savings and demat accounts held with ICICI Bank.

To use the electronic brokerage platform for brokerage services,
the customers requires using a "3-in-1 account". Through a single
login step, the 3-in-1 account links the customers' savings bank
and demat accounts held with ICICI Bank to the electronic
brokerage platform, which allows the customers to seamlessly
trade without having to deposit money in the brokerage account.
In addition, this allows them to efficiently and swiftly transfer
funds into the customer's account as soon as it is made available
to them in the case of sell orders. This seamless and
interoperable feature of the electronic brokerage platform
provides the clients with greater flexibility in the use of their
money.
Strong Financial Performance with Significant Operating Efficiency
ICICI Securities has an established track record of strong
financial performance and delivering returns to shareholders.
The total revenues and PAT increased from INR 7.06bn and INR
717.5 million, respectively, in FY13 to INR 14.04bn and INR 3.4bn
in FY17, respectively, representing a CAGR of 18.8% and 47.4%,
respectively. In 9M FY18, revenues and PAT were INR 1345bn
and INR 3.99bn, respectively. ROE has exceeded 30% for each
measured period since FY13. For FY17, ROE was 69.2%. The
company has a consistent record for paying dividend and the
dividend pay-out ratio was 60.6% in FY17.
While the revenues have been growing, the focus is on managing
costs by leveraging the efficiencies inherent in the technology-
based business model, which is scalable and asset-light. As a
result, cost ratio, which is defined as the ratio of total expenses
to total revenue, has decreased from 84.6% in FY13 to 62.8% in
FY17. Our cost ratio was 54.4% for 9M FY18. During the same
time, the employee productivity, which is defined as the ratio of
annualized revenue to the period ending employee count, has
increased from INR 1.8 mn in FY13 to INR 4.3 mn in 9M FY18.
Experienced Senior Management Team
The management team has extensive experience in the financial
services sector. MD & CEO has been with the ICICI Group for over
27 years. Prior to joining the Company, she served in a wide
variety of roles within the ICICI Group, including treasury,
corporate banking and project finance.
The quality of management team has been critical in achieving
the business results and that the management's experience will
help the company make timely strategic and business decisions
in response to evolving customer needs and market conditions.
In particular, the management team has strong cross-functional
expertise across business segments, product design and
technology.
4
BFSI
Strategies
Continue Investing in Technology and Innovation
As one of the pioneers in the e-brokerage business and given
that large majority of the customers interact through our
electronic brokerage platform, the company need to continuously
invest in technology to ensure that they provide the customers
with a fast, seamless and secure experience.
It plans to continue making investments in the IT infrastructure
underlying the electronic brokerage platform to augment
capacity, deliver innovative products and improve the user
interface across devices. They intend to continue to improve the
processing speed of trades/orders, keep up with latest cyber
security best practices, and increase integration and inter-
operability with third parties to provide the customers with more
products and services.
They also aim to increase the use of technology in other parts of
the business to optimize the operations, reduce costs and errors,
including in the areas of sales, customer relationship
management, information security and risk management.
As the customer base increases, they have access to an increasing
amount of data. They intend to continue investing in analytics
capabilities to ensure that they are able to gain actionable
insights from such data. They have, and will continue to, use
analytics to help understand customer preferences, design new
products, identify targets for cross-selling and increase customer
transactions.
Strategically Expand Our Financial Product Distribution Business
Through Cross-Selling
They intend to maintain the growth momentum in the financial
product distribution business and evaluate new opportunities
to expand.
They believe that the significant retail brokerage customer base
presents them with significant potential to cross-sell third-party
financial products. In particular, they believe that certain asset
classes are underpenetrated among the customer base and will
leverage the analytics capabilities to selectively target customers
based on their likelihood to purchase such products. They also
intend to continue working with third-party providers to increase
the number of products available to our customers.
They believe that growing urbanization and increasing affluence
are poised to benefit Tier-II and Tier-III cities, and increase retail
participation in financial instruments in such cities. To benefit
from this trend, they will explore the expansion of our
 BFSI

distribution network in such cities to increase their customer Outlook & Valuation
base, including through the opening of new branch offices,
ICICI Securities, India's largest retail broker has seen a revenue
increasing the penetration in ICICI Bank branches, or through
growth of ~15% CAGR from FY15-FY18 (on annualized FY18E
additional sub-brokers, authorized persons, IFAs and IAs.
revenue) as the broking industry in India witnessed high growth
Leverage Our Leadership in Equity Capital Markets to Strengthen in terms of increase in new accounts, higher income from
Our Financial Advisory Businesses
distribution business and sharp rise in primary market
The company intends to maintain their leadership position in
transactions in the last 2 years. It has a capital light business
the equity capital markets business in terms of number of primary
model which is reflected by its high average ROE of ~70% since
market issuances by acquiring new clients who will also
FY15. ICICI securities is a direct beneficiary of the activities in the
strengthen their advisory business and increase the number of
capital market business which has experienced an improved
advisory transactions. The equity capital markets business
macro environment, shift from physical assets to financial assets
provides them with various advantages which can be leverage
and stable government and its policies. However, declining
to increase the market share and ranking in the financial advisory
customer/revenue market share, increase in online competition
business. For example, their demonstrated execution
in distribution, declining 3-in-1 account penetration and
capabilities, strong and visible brand, existing corporate
regulatory changes are the key risk the company faces. At the
relationships and corporate access services are all
upper price band of INR 520 per share, the stock is being valued
complementary to the financial advisory business.
at 31.5x 9M FY18 annualized earnings. We recommend SUBSCRIBE
Management team to the issue for long term investment.
Name Designation Background
Shilpa Naval Kumar MD & CEO A graduate diploma in
management from Indian
Institute of Management
Calcutta. She has previously
worked with ICICI Bank for over
27 years in the areas of
planning, project finance,
corporate banking and treasury
at ICICI Bank.
Harvinder Jaspal CFO He holds a bachelor's degree in
engineering from Maulana Azad
College of Technology, Bhopal
and holds a post graduate
diploma in business
management from Indian
Institute of Management
Society, Lucknow. He has
previously worked with ICICI
Prudential Life Insurance
Company Limited for
approximately 10 years in the
finance and accounts division.
Raju Nanwani CS He holds a bachelor's degree in
commerce from the University
of Mumbai and holds a
bachelor's degree in law
(general) from University of
Mumbai. He has over 19 years
of experience in capital
markets and financial services
industry.

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 BFSI

Financials
Income Statement Balance Sheet
(INR mn) FY15 FY16 FY17 9M FY18 (INR mn) FY15 FY16 FY17 9M FY18
Revenue from operations Liabilities
(a) Share capital 1,611 1,611 1,611 1,611
(a) Brokerage income 7,554 6,607 7,759 7,490
(b) Reserves and surplus 1,912 2,371 3,285 5,141
(b) Income from services 3,363 3,499 4,983 4,694
3,523 3,982 4,896 6,751
(c) Interest and other operating income 910 957 1,087 1,118 Non-current liabilities
(d) Profit/(loss) on sale of securities (net) 268 182 214 146 (a) Other long term liabilities 525 628 827 846
(b) Long term provisions 161 268 338 398
Total Revenue 12,095 11,246 14,042 13,447
686 895 1,165 1,243
Expenses
Current liabilities
(a) Employee benefits expenses 3,921 4,014 4,847 4,148
(a) Short term borrowings 2,265 1,729 3,954 8,607
(b) Operating expenses 1,045 1,015 1,290 1,103 (i) Micro, small and medium enterprises 5,569 5,925 8,699 10,397

(c) Other expenses 2,158 2,058 2,244 1,603 (ii) Others 1,545 1,402 1,710 2,129
(c) Other current liabilities 41 42 51 89
EBITDA 4,971 4,159 5,663 6,593
(d) Short term provisions 9,420 9,098 14,414 21,222
EBITDA Margin (%) 41% 37% 40% 49%
Total 13,629 13,975 20,474 29,217
(d) Depreciation and amortization expense 163 160 155 116

EBIT 4,808 3,999 5,508 6,477 ASSETS

Non-current assets
EBIT Margin (%) 40% 36% 39% 48%
(a) Fixed Assets
(e) Finance costs 311 258 287 352
(i) Property, plant and equipment 253 251 242 261
Total expenses 7,598 7,505 8,822 7,321 (ii) Intangible assets 96 103 104 102
Profit before tax 4,497 3,741 5,220 6,126 (iii) Capital work-in-progress 7 4 1 35

Tax expense (iv) Intangible assets under development 30 20 28 24

385 378 375 423
(a) Current tax 1,631 1,475 1,904 2,216
(b) Non-current investments 12 12 21 19
(b) Deferred tax -73 -122 -69 -81
(c) Deferred tax assets (net) 387 509 578 659
Total tax expense 1,558 1,354 1,835 2,135 (d) Long term loans and advances 1147 1293 1362 1233

Profit after tax 2,939 2,387 3,386 3,991 (e) Other non-current assets 162 270 812 49
2093 2462 3146 2383
PAT Margin (%) 24% 21% 24% 30%
Current assets
EPS 9.1 7.4 10.5 12.4
(a) Current investments - - 1 1000
Ratios (b) Stock-in- trade 338 1413 311 291
BVPS (not annualised) 11 12 15 21 (c) Trade receivables 1731 2933 7101 3559

ROA (%) (not annualised) 22% 17% 17% 14% (d) Cash and bank balances 8531 6394 8824 14303
(e) Short-term loans and advances 310 254 359 6789
ROE (%) (not annualised) 83% 60% 69% 59%
(f) Other current assets 625 519 734 892
P/E* (annualised) 57 70 49 42
11535 11513 17328 26834
P/BV (not annualised) 48 42 34 25 TOTAL 13629 13975 20474 29217

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 BFSI

Sharad Avasthi Head - Equity Research sharad.avasthi@spasec.in Tel.: +91-022-4289 5600 Ext.205

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List of Associates as per SEBI (Research Analyst) Regulations, 2014

Statements on ownership and material conflicts of interest, compensation - SPA and Associates
Disclosure of interest statement Yes/No
SPA Securities/its Affiliates/Analyst/his or her Relative financial interest in the company No
SPA Securities/its Affiliates/Analyst/his or her Relative actual/beneficial ownership of more than 1% in subject company at the end of the month
No
Immediately preceding the date of the publication of the research report or date of public appearance.
Investment banking relationship with the company covered No
Any other material conflict of interest at the time of publishing the research report No
Receipt of compensation by SPA Securities or its Affiliated Companies from the subject company covered for in the last twelve months:
• Managing/co-managing public offering of securities
• Investment banking/merchant banking/brokerage services No
• products or services other than those above
• in connection with research report
Whether Research Analyst has served as an officer, director or employee of the subject company covered No
Whether the Research Analyst or Research Entity has been engaged in market making activity of the Subject Company; No
For statements on ownership and material conflicts of interest, compensation, etc. for individual Research Analyst(s), please refer to each specific research report.

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