IIFL ICICI Sec Initiation 87521

ICICI Securities
BUY
CMP Rs444 Future growth drivers in place

Target 12m Rs600 (35%)
Market cap (US$ m) 1,959 We initiate coverage on ICICI Securities (ISEC), with a TP of
Rs600/share (22x FY23ii EPS, 35% upside) owing to its
Bloomberg ISEC IN strong profitability and stable earnings growth. ISEC is a
Sector Broking leading, diversified, full-service broking company. It is the
country’s third-largest broker by NSE active clients (with an
15 January 2021 8.4% market share as of 2QFY21) and the second-largest
non-bank mutual-fund distributor, with ~4.5% of industry
52Wk High/Low (Rs) 569/204 commissions (FY20). At the macro-level, ISEC should benefit
Shares o/s (m) 322 from increasing financialization of savings and participation
Daily volume (US$ m) 4 in equity markets, along with increasing adoption of
Dividend yield FY22ii (%) 3.8 technology. As sourcing from non-ICICIBC channels picks up
Free float (%) 25.0 and the product suite widens substantially, ISEC should be
able to sustain its revenue growth. This should enable it to
Shareholding pattern (%)
deliver 10-14% RoA and 40-58% RoE over FY21-23ii.
Promoters 75.0
Pledged (as % of promoter share) 0.0 Well-diversified franchise provides earnings stability: ISEC’s
FII 4.6 broking business forms the mainstay for its revenue base (55% in
DII 8.7 FY20) with distribution being the next largest contributor (23% in
FY20). The contribution of the Margin Trade Finance (MTF) & ESOP
Price performance (%)
funding is also increasing. ISEC is creating a diversified revenue
1M 3M 1Y
base, which will last across cycles as compared to discount brokers
ISEC (4.6) (2.9) 1.9
for whom revenues will be more cyclical in the longer term. We
Absolute (US$) (3.9) (0.7) 2.2
expect 12% revenue Cagr over FY20-23ii.
Rel.to BSE Midcap (13.0)(32.8)(22.3)
CAGR (%) 3 yrs 5 yrs Expanded sourcing mix and newer initiatives to drive growth:
EPS 17.0 13.0 ISEC’s dependence on customer sourcing by ICICIBC is decreasing
(55% in 2QFY21 vs. 80% in FY20), driven primarily by scaling-up of
Stock movement
its other sourcing channels – business partners, branches and digital
Vol('000, LHS) Price (Rs., RHS)
20,000 600
sourcing – which should continue to grow. ISEC has also undertaken
15,000
new initiatives including its subscription-based Prime plan, its revised
tie-up with ICICIBC and open architecture for broking. Together,
400
10,000
5,000
200 these will likely drive healthy growth in ISEC’s active client base.
0 0
Aiming for ‘stabler’ earnings growth; initiate with BUY: ISEC’s
Dec-18
Dec-19
Dec-20
Jun-19
Jun-20
Aug-19
Oct-19
Aug-20
Apr-20
Oct-20
Feb-19
Apr-19
Feb-20
business model will deliver more stable financial metrics (revenues,

RoA and RoE) across cycles versus discount brokers who may be
Return on assets (%) getting stronger incremental market share in active clients but whose
(%) long-term profitability/revenue growth would remain deeply cyclical.
16.0
14.0 13.0
14.3
ISEC will likely deliver 10-14% RoA and 40-58% RoE over FY21-23ii.
12.0
11.9 11.3 We value ISEC at 22x FY23ii EPS (Rs600/share).
10.0
10.0 Financial summary (Rs m)
8.0 Y/e 31 Mar, Parent FY19A FY20A FY21ii FY22ii FY23ii
6.0
Operating revenue (Rs m) 17,270 17,249 22,704 24,031 24,046
4.0
Operating profit (Rs m) 7,572 7,529 11,299 11,823 11,747
2.0
0.0
Pre-exceptional PAT (Rs m) 4,907 5,420 8,455 8,847 8,790
FY19 FY20 FY21ii FY22ii FY23ii Pre-exceptional EPS (Rs) 15.2 16.8 26.2 27.5 27.3
Source: Company IIFL Research Growth (%) (11.3) 10.4 56.0 4.6 (0.6)
IIFL vs consensus (%) 3.9 15.4 7.6
Arash Arethna
PE (x) 29.2 26.4 16.9 16.2 16.3
arash.arethna@iiflcap.com
PEG (x) 1.9 1.6 0.6 0.6 0.6
91 22 4646 4655
Book value (Rs) 33 38 53 64 74
Abhishek Murarka PB (x) 13.7 11.8 8.4 7.0 6.0
abhishek.murarka@iiflcap.com ROA (%) 13.0 11.9 14.3 11.3 10.0
91 22 4646 4645 ROE (%) 51.8 48.0 58.1 47.1 39.6
www.iiflcap.com Source: Company, IIFL Research. Price as at close of business on 14 January 2021.
1
ICICI Securities – BUY
Contents
Future growth drivers in place ................................ …….1

Macro drivers to aid structural growth... ................... ……3
Large brokers to gain share in the long term ................. 6
Expanded sourcing to drive revenue growth ................. 12
Multiple revenue drivers lower volatility ....................... 17
Key Risks ................................................................. 33
New margin regulations ............................................. 34
Company background ................................................ 35
Company snapshot .................................................... 37
Financial summary .................................................... 38
arash.arethna@iiflcap.com 2
Macro drivers to aid structural growth

Financialisation of savings to continue in the medium term:
Household financial savings in India should continue to grow, given
that India has traditionally been a high-savings economy. Going
forward, the share of savings in financial assets is also expected to
increase, driven by lower attractiveness of gold and real estate as
well as increased financial literacy. An increase in the proportion of
gross financial savings from FY12 to FY19 is an indicator of the
increase in financial savings, while continued growth in new investors
in terms of CDSL and NSDL accounts as well as MF folios and demat
accounts indicates that this trend is intensifying.
Figure 1: Household savings growth should continue, going forward

(Rs tn) Household savings (LHS) YoY Growth (RHS) (%)
40 20.0
34.5
35
29.4
30 26.2 15.0
24.4 24.7
25 22.4 22.9
20 10.0
15
10 5.0
5
0 0.0
FY13 FY14 FY15 FY16 FY17 FY18 FY19
Source: MOSPI, IIFL Research
Figure 2: The share of household savings in financial assets has increased

structurally over FY12, owing to higher financial literacy and outperformance of
financial assets
(%) Gross Financial Savings Physical Savings Gold and Silver Ornaments
100.0 1.4 1.4 1.4 1.6 1.6 1.4 1.0 0.8
80.0
53.6 53.7 46.1 49.0 47.6 51.8
59.0 57.1
60.0
40.0
45.0 44.6 52.3 49.6 51.3 47.4

20.0 39.6 41.5
0.0
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Source: CMIE, IIFL Research
Figure 3: Increasing number of new investors evident from the increase in CDSL and
NSDL accounts
mn FY15 FY16 FY17 FY18 FY19 FY20 1QFY21 Cagr %
CDSL 9.6 10.8 12.3 14.8 17.4 21.2 23.2 18.2
NSDL 13.7 14.6 15.6 17.1 18.5 19.7 20.0 7.5
Source: CDSL & NSDL websites, Angel Broking DRHP, IIFL Research
Figure 4: Steady increase in MF folios and demat accounts as well

mn FY15 FY20 Cagr %
MF folios 41.7 89.7 16.5
Demat accounts (active) 23.3 40.9 11.9
Source: CDSL & NSDL websites, Angel Broking DRHP, IIFL Research
Higher mobile and internet penetration to aid growth: Internet

penetration in India is on the rise, driving internet trading volumes,
which increased from 20.9% to 31.5% over FY15-19 in the F&O
segment, and from 23.2% to 29.8% in the cash segment. The share
of internet-based trading however declined in both segments in
FY20, owing to high growth in turnover. Growing mobile usage and
penetration and growing usage of smartphones would aid further
growth. Advances in technology have also enabled easier online
operations, where brokerages can obtain a large amount of client
data and information, including completely online account opening.
Figure 5: Higher smart-phone penetration, improved connectivity and cheaper

data aiding India’s shift to a digital economy; CRISIL expects number of internet
subscribers to exceed the 1bn mark by FY25, leading to 76% internet penetration
(%) Smart phone installed base Feature-phone installed base
100
80 46
58 52
62
75 70
60 81
89
40
48 54
20 38 42
25 30
19
11
0
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY22P
Source: CRISIL Research as per Angel Broking DRHP, IIFL Research
Figure 6: Increasing share of internet-based trading in overall turnover for the NSE
segment
Particulars FY15 FY16 FY17 FY18 FY19 FY20
NSE cash - Internet Statistics
Clients (mn) 6.4 9.5 9.1 7.5 NA NA
Trading Value (Rs tn) 10.1 10.3 13.1 21.3 25.9 22.8
Share in overall trading (%) 23.2 24.2 25.8 29.4 29.8 23.5
NSE F&O - Internet Statistics

Clients (mn) 4.7 4.8 4.4 3.9 NA NA
Trading Value (Rs tn) 116.1 146.2 254.9 484.1 748.3 885.9
Share in overall trading (%) 20.9 22.6 27.0 29.3 31.5 25.7
Source: NSE, CRISIL Research as per Angel Broking DRHP, IIFL Research
Figure 7: Mobile-based trading on an upward trajectory as well

Segment FY14 FY15 FY16 FY17 FY18 Upto 3QFY19
NSE Mobile (cash) 0.7 1.1 2.2 3.5 5.1 8.1
NSE Mobile (derivatives) 0.3 0.5 1.0 1.6 2.2 3.2
BSE Mobile (cash) 0.2 0.5 1.1 2.2 3.1 5.3
Source: SEBI, NSE, CRISIL Research as per Angel Broking DRHP, IIFL Research
Equity market turnover on the upswing: Higher investor interest

in the derivatives segment has driven the increase in overall
turnover over FY15-20. The share of derivatives in total market
turnover increased, from ~91% to ~97%, over the same period.
Factors aiding this growth included i) an overall rise in benchmark
indices, ii) reduction in securities transaction tax (STT) on equity
futures, from 0.017% to 0.010%, and an increasing share of high-
frequency algorithmic trading in the derivatives market.
Figure 8: Rapid growth in overall equity market turnover Figure 9: ADTO has also increased, with rising investor
participation
(Rs tn) Cash Turnover Derivatives Turnover (Rs bn) Cash ADTO Derivatives ADTO
19,897
4,000 25,000
3,377
13,896
3,500
13,808
20,000
3,000
2,323
9,561
2,500 15,000
6,689
2,000 1,605 1,313
3,824
1,500 10,000 2,629
2,294
941 801
1,000 647
622
587
5,000
391
541
352
339
244
214
201
500 60 81 86 95 34 41
50 50
0 0
FY16
FY15
FY17
FY18
FY19
FY20
1QFY21
2QFY21
FY15
FY16
FY17
FY18
FY19
FY20
1QFY21
2QFY21
Source: Bloomberg, IIFL Research Source: Bloomberg, IIFL Research
Figure 10: Retail ADTO has shifted upward; 4QFY20 was aided by heightened
volatility
(Rs bn) Cash Equity Derivatives
8,000 7,383
7,000 6,575 6,572 6,581
5,869
6,000
5,000
4,000
3,000
2,000
1,000 201 193 222 235 321
0
1QFY20 2QFY20 3QFY20 4QFY20 1QFY21
Source: NSE, BSE, CRISIL Research as per Angel Broking DRHP, IIFL Research
Large brokers to gain share in the long term

The Indian broking industry can be classified as per the type of
service offered, parentage and business diversification. The primary
types of brokers are:
 Full service brokers: These brokers offer a wide range of
services, including offline/online trading, demat accounts,
advisory services and distribution of other financial products.
They also provide research reports and relationship managers for
personalised service.
 Discount brokers: These offer services such as low costs and
fixed brokerage fees, irrespective of the order size, and such
service is provided through an online platform.
Figure 11: Overview of the Indian broking industry
Source: Company, IIFL Research
Figure 12: SWOT analysis for full-service brokers

Strengths Weaknesses
Higher cost compared to discount brokers, who have lower
Entire financial product-suite offered on one platform
commissions
Higher diversification of revenue sources from distribution, Technology platforms less agile than discount brokers, due to
investment banking, MTF & ESOP, etc. legacy systems
Higher share of older customers (above 40 years), who have
higher share of wealth
In-house research available to customers
Trust factor and brand recognition, in being backed by a large
bank/financial institution
Strong physical distribution network
Opportunities Threats
Better execution with website and mobile applications Decline in yields due to competition from discount brokers
Further rationalization in employee headcount and own Loss in incremental market share increases dependence on
branch network vintage customers
Open architecture in life and general insurance distribution
Ability to diversify products, sourcing, partnerships, etc. to
build business stability
Domestic equity broking industry expected to grow at 11-

12% Cagr until FY25: The domestic broking industry’s revenue
registered a 10.5% Cagr over FY15-20, to reach ~Rs225bn, driven
by a 34% increase in equity turnover (cash+derivatives) over the
Growth in the domestic same period. The industry is likely to witness strong growth going
equity broking industry will forward, despite difficulties, including pressure on yields and changes
likely be driven by greater
in regulations. Growth will likely be on account of higher reach of
reach into untapped
markets and leveraging players into untapped markets and leveraging digital models. This
digital business models would be supported by a 23-25% Cagr in equity turnover over FY20-
25, owing to higher investor awareness and retail interest across
segments, coupled with easier access to markets.
Figure 13: Equity broking industry revenue is expected to grow at an 11-12% Cagr,
driven by unlocking of untapped markets and scaling-up of digital models
(Rs bn)
450 11-12% Cagr
380-400
400
350
10.5% Cagr
300
250 225.0
200
150 128.0
100
50
0
FY15E FY20E FY25P
Source: CRISIL Research as per Angel Broking DRHP, IIFL Research
Strong growth in NSE active clients likely to continue: Over

FY15-2QFY21, NSE active clients grew at a Cagr of 20.5%, from
5.1mn to 14.2mn. Growth has been especially strong since FY20
onwards, with a ~23% YoY in FY20 and 58% YoY growth as of
1HFY21. The strong growth in recent quarters is on account of a
spurt in trading volumes and active clients amid the lockdown, with
many brokerages witnessing a sharp increase in new account
openings. Only Zerodha has a market share in excess of 10%, with
ISEC coming third with a market share of 8.4% as of 2QFY21.
Figure 14: Trend in NSE active clients Figure 15: NSE active client market share, as of 2QFY21
(mn) Active Clients Total Growth % (YoY) (%) (%) Zerodha
16 14.22 70 RKSV
14 4.9
12.20 60 4.8 3.2 ISEC
12 10.80 5.6
50
10 8.29 8.78 7.1 Angel
40
8 5.95 8.4 40.0 HDFC Sec
5.09 5.17 30
6
4 20 8.6 Kotak Sec
2 10 5Paisa Capital
17.4
0 0 Motilal Oswal
1QFY21
2QFY21
FY15
FY16
FY17
FY18
FY19
FY20
Others
Source: Company, IIFL Research Source: Company, IIFL Research
Larger players are gaining market share: The industry has

traditionally been fragmented with the top-5 brokers accounting for
only 32.5% of NSE active clients as of FY15. Since FY18, however,
the industry has been witnessing a consolidation towards larger
players, with the share of top-5 brokers in NSE active clients
increasing to 47.1% by 2QFY21. This has been driven by the ability
of larger players to better adapt to the changing industry dynamics,
including offering a multitude of products under one platform, as well
as higher trust in reputed and bank-backed players who have
stronger balance sheets. Certain events, including the misuse of
client funds by a large stock broker, have likely intensified the
market share shift to larger players. The share of the top-5 brokers
has increased in the NSE and BSE cash equity-markets as well as the
NSE F&O market.
Figure 16: Share of the top-5 brokers in NSE and BSE cash Figure 17: Share of the top-5 brokers, in terms of NSE active
equity-markets clients
(%) BSE NSE (%)
33 50 47.1
35 31 43.9
45 40.8
30 27 26 40 37.4
24 35 32.5 32.1 31.3 32.8
25 21 21 20 22 30
18 18 19 18 25
20
15 20
15 15
10
10
5
5 0
1QFY21
2QFY21
FY19
FY15
FY16
FY17
FY18
FY20
0
FY15 FY16 FY17 FY18 FY19 FY20 Apr 20
Source: SEBI, CRISIL Research as per Angel Broking DRHP, IIFL Source: SEBI, CRISIL Research as per Angel Broking DRHP, IIFL
Research Research
Figure 18: Market share trend in NSE active clients – full-service brokers are losing
market share, shows a wide divergence in the target customer base
(%) FY15 FY16 FY17 FY18 FY19 FY20 1QFY21 2QFY21
Zerodha 0.6 1.2 2.8 6.5 10.4 13.1 15.9 17.4
RKSV 0.1 0.2 0.3 0.5 1.1 5.7 6.4 8.6
ISEC 11.7 10.8 10.4 9.6 9.6 10.0 9.2 8.4
Angel 3.1 3.3 3.9 4.4 4.7 5.3 6.3 7.1
HDFC Sec 6.8 7.9 8.1 7.3 7.7 6.7 6.1 5.6
Kotak Sec 5.3 4.8 4.6 4.5 5.0 5.3 5.2 4.8
5Paisa Capital 0.0 0.0 0.1 0.4 1.2 4.0 4.6 4.9
Motilal Oswal 3.0 3.2 3.5 3.7 3.6 3.5 3.4 3.2
Others 69.3 68.6 66.4 63.1 56.7 46.4 42.8 40.0
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Source: NSE, IIFL Research
Bank-backed brokers have a different client focus: While

discount brokers have witnessed exponential growth in recent times,
bank-backed brokers have grown their NSE active client base at a
healthy pace as well, aided by sourcing of clients from the parent
bank. While the disparity in growth is expected to continue, we
expect the gap to close on account of new product offerings by bank-
backed brokerages as well as improvements in their technology
platforms, to better compete with discount brokerages.
Secondly, we believe that the target customer base is also different

with bank-backed brokers better entrenched in the older, salaried
population which is already a bank customer and aspires for
transacting with more renowned platforms.
Figure 19: Stable growth in NSE active clients for bank-backed brokers
(mn) Category FY17 FY18 FY19 FY20 1QFY21 2QFY21 FY17-2QFY21 CAGR (%)
Zerodha Discount 0.17 0.54 0.91 1.41 1.94 2.47 116.4
5Paisa Capital Discount 0.00 0.04 0.11 0.43 0.57 0.70 336.8
RKSV Discount 0.02 0.04 0.10 0.62 0.78 1.22 239.4
ISEC Bank-backed 0.62 0.80 0.84 1.08 1.12 1.20 20.7
HDFC Sec Bank-backed 0.48 0.60 0.67 0.72 0.75 0.80 15.6
Kotak Sec Bank-backed 0.27 0.37 0.44 0.57 0.64 0.68 29.5
Axis Securities Bank-backed 0.26 0.41 0.42 0.27 0.30 0.36 10.0
SBICAP Securities Bank-backed 0.17 0.21 0.21 0.25 0.27 0.29 16.2
Angel Other Full-service 0.23 0.36 0.41 0.58 0.77 1.01 52.6
Motilal Oswal Other Full-service 0.21 0.31 0.32 0.38 0.41 0.45 24.7
India Infoline Other Full-service 0.20 0.23 0.21 0.22 0.24 0.25 7.2
Edelweiss Broking Other Full-service 0.08 0.11 0.12 0.13 0.14 0.14 20.1
Reliance Securities Other Full-service 0.08 0.12 0.12 0.12 0.12 0.12 11.5
Aditya Birla Money Other Full-service 0.04 0.06 0.04 0.04 0.05 0.05 6.8
JM Financial Other Full-service 0.03 0.04 0.04 0.04 0.04 0.04 10.0
Others NA 3.10 4.06 3.82 3.94 4.08 4.44 10.8
Total 5.95 8.29 8.78 10.80 12.20 14.22 28.3

Figure 20: Comparison of services offered by different brokers

HDFC Kotak Axis Motilal
Parameter ISEC Zerodha 5Paisa Angel RKSV Sharekhan
Sec Sec Sec Oswal
Zero Account opening fee No* No Yes Yes No Yes No No No No
Complementary Research / Advisory Yes No Yes Yes No Yes Yes Yes Yes Yes
Margin trading facility Yes No Yes Yes Yes Yes Yes Yes Yes Yes
Securities as collateral Yes No Yes Yes Yes Yes Yes Yes Yes Yes
Paid services (Smallcase/ Sensibull etc.) Yes Yes Yes No No Yes Yes Yes No No
Knowledge center/ Education Yes Yes Yes Yes Yes No Yes Yes Yes Yes
Zero fund transfer charges Yes No No Yes No Yes Yes Yes Yes Yes
@
Instant fund payout Yes No No Yes No Yes Yes Yes No No
Source: CRISIL Research as per Angel Broking DRHP, IIFL Research;*ISEC usually waives account opening fees;
@ ISEC offers an instant payout upto Rs50,000 for normal customers and upto Rs10mn for Prime customers within 30min of the transaction if
the customer opts for the e-ATM service. This is the fastest TAT in the Industry so far.
Figure 21: Brokerage rates for major players across products

Broker Delivery Intraday Futures Options Commodity
ISEC 0.550% 0.050%* 0.050% Rs. 95 per lot Rs. 95 per lot
ISEC (tiered plan - 1) 0.250% 0.025% 0.025% Rs. 35 per lot Rs. 35 per lot
ISEC (tiered plan - 2) 0.250% 0.025% 0.025% Rs. 20 per order + Rs. 5 per lot Rs. 20 per order + Rs. 5 per lot
ISEC Neo (launched Dec-2020) 0.550% Rs. 20 0 Rs. 20 Rs. 20
Angel Broking 0 Rs. 20 Rs. 20 Rs. 20 Rs. 20
Zerodha 0 Rs. 20 Rs. 20 Rs. 20 Rs. 20
RKSV Securities 0 Rs. 20 Rs. 20 Rs. 20 Rs. 20
5 Paisa Rs. 20 Rs. 20 Rs. 20 Rs. 20 Rs. 20
Axis Securities 0.50% 0.05% 0.05% Rs. 100 per lot Rs. 100 per lot
Axis securities (tiered plan) 0.250% 0.030% 0.030% Rs. 50 per lot Rs. 50 per lot
Kotak Securities 0.490% 0.049% 0.049% Rs. 300 per lot Rs. 300 per lot
HDFC Securities 0.500% 0.050% 0.050% Rs. 100 per lot Rs. 100 per lot
Motilal Oswal 0.500% 0.050% 0.050% Rs. 70 per lot 0.050%
IIFL Securities 0.500% 0.050% 0.050% Rs. 100 per lot Rs. 100 per lot
Source: CRISIL Research as per Angel Broking DRHP, IIFL Research, Note: *rate would be 0.275% in the case of intraday square-off
Figure 22: ISEC’s revenue stream is more diversified than other pure play brokers
Broking income as % of revenue
FY20 - Total Income
Broker FY17 FY18 FY19 FY20
(Rs mn)
Aditya Birla Money 1,737 72 68 56 54
ISEC (standalone) 17,221 55 55 54 55
Reliance Securities 2,083 69 66 62 66
India Infoline 6,437 87 68 70 67
5Paisa Capital 1,081 21 77 89 67
Angel Broking 7,599 56 64 71 75
HDFC Securities 8,623 76 89 85 80
Kotak Securities 16,900 60 53 55 NA
SBICAP Securities 4,959 45 43 40 NA
Source: Company filings, Angel Broking DRHP, IIFL Research
Long-term profitability of discount brokers yet to be

ascertained: Bank-backed brokers have higher profitability on the
whole compared with other full-service brokers and discount brokers.
While discount brokers may have a disproportionate share of trading
volumes, their share in industry profits would be low. Over the
longer term, they would likely have to increase their rates; else their
long-term viability might come under threat.
Figure 23: Bank-backed brokers have higher profitability

PAT margin (%)
FY20 - PAT 3-Yr CAGR %
(Rs mn) (FY17-20)
HDFC Securities 3,842 21 39 43 42 45
Kotak Securities 5,550 15 29 29 24 33
ISEC (standalone) 5,367 17 24 30 28 31
India Infoline 1,426 23 15 21 21 22
SBICAP Securities 849 48 10 21 14 17
Angel Broking 823 38 6 14 10 11
Aditya Birla Money 120 25 5 4 6 7
5Paisa Capital (79) NM (157) (129) (31) (7)
Reliance Securities 388 NM 0 3 8 (19)
Source: Company filings, Angel Broking DRHP, IIFL Research
Expanded sourcing to drive revenue growth

Sourcing channels ramp-up to lower dependence on ICICIBC:
ISEC currently has 4 major customer sourcing channels – ICICIBC,
business partners, own branches and, lastly, digital sourcing. ISEC
Scale-up in other sourcing
has gradually managed to lower its dependence on ICICIBC, with it
channels would reduce
ISEC’s dependence on now accounting for 55% of the sourcing mix in 2QFY21, down from
ICICIBC sourced accounts 80% in FY20. ISEC is aiming to sustainably reduce its dependence
on this channel. As the other channels continue to grow in scale,
sourcing for ISEC would get further diversified.
Figure 24: ISEC – Estimated account sourcing mix in 2QFY21

Business
partners
14.0%
ISEC branches
6.0%
ICICIBC
55.0%
Digital sourcing
25.0%
Business-partners network scaling-up rapidly: ISEC is focusing

on increasing its partner network, especially in Tier II and Tier III
cities, to increase market penetration in a cost-effective manner.
Partners include Independent Financial Associates (IFAs),
Independent Associates (IAs), sub-brokers and Authorized Persons
(APs). ISEC’s partner network grew 32%, to reach over 9,400 in
FY20, covering 800 cities and towns, up from 711 in FY19. This led
to clients sourced through partners growing by ~70% YoY in
4QFY20. The network grew another 44% in 1HFY21, to reach
13,600. The 13,600+ business partners sourced ~16,000 accounts
in 2QFY21 which is ~250% higher than in the same period last year.
Figure 25: Business-partner network scaling-up rapidly… Figure 26: …leading to a sharp increase in clients sourced
through business partners as well
(Nos) Partners (LHS) YoY growth (RHS) (%) (%)
16,000 50.0 300 266
13,600 251
14,000 250
40.0
12,000
9,400 200
10,000 30.0
8,000 7,100 150
5,400 20.0
6,000
4,000 4,600 100 73
4,000 45
10.0 50 23
2,000 16
0 0.0 0
FY16 FY17 FY18 FY19 FY20 1HFY21 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21
Source: Company, IIFL Research; Note: Growth for 1HFY21 is for the Source: Company, IIFL Research
half year
Branches and digital sourcing expanding as well: Despite ISEC

lowering its branch count by ~17% YoY to 156 branches as of
1HFY21, its branches are now opening ~3,000-4,000 accounts per
month, up from 1,000-1,500 during pre-COVID times. Digital
sourcing is also growing, with ~27,000 accounts sourced digitally in
2QFY21. Regarding the partnership with other banks, ISEC is
currently in various stages of discussion with 4 banks and this should
conclude in the coming quarters. This would provide a further boost
to customer sourcing.
Open architecture has increased access to the market; other

bank partnerships to follow: During FY20, ISEC introduced open
architecture, which allows customers to link any bank account to
their trading and demat account. This is as opposed to the customer
needing a ‘3-in-1’ account earlier, which would necessitate that he
open a savings bank account with ICICIBC. In the open architecture
Open architecture has
increased ISEC’s potential model, ISEC does not need a formal tie-up with other banks;
addressable market however, such customers need to first transfer the money to ISEC on
which ISEC generates float income, while for customers with ICICIBC
accounts, the money remains with the bank. Open architecture has
increased the addressable market size, while also lowering sourcing
from the ICICIBC channel. Going forward, ISEC would also look to
get into sourcing partnerships with other banks, which should help
accelerate customer acquisition and further diversify the customer
sourcing mix.
Product enhancement to fulfill all financial needs: During FY20,

ISEC introduced loans as a new asset class. It now offers various
ICICIBC loan products, comprising home loans, two-wheeler loans,
auto loans, personal loans, loan against property (LAP), gold loans,
lease rental discounting and credit/travel cards on its platform. ISEC
has tied-up with multiple lending partners, including ICICIBC, ICICI
HFC, HDFC, BOB, PNBHF and Tata Capital, for higher approval rates
in the home loan and LAP segments.
Customer acquisition for ISEC to pick-up going forward:

ISEC’s major strengths going forward would be its expanding
distribution network and its new initiatives in the broking space. Its
new tie-up with ICICIBC would also aid in acquiring higher quality
customers. ISEC’s share of NSE active clients has grown at a slower
pace than the overall industry, given the increase in discount
brokerages. While discount brokerages always offered a Do-It-
Yourself product, ISEC launched its product only in April 2020
(completely online account opening). ISEC is also revamping its
mobile application. While we do not expect ISEC’s active client
growth to exceed the industry, growth would remain healthy on a
standalone basis and drive overall revenue growth.
Figure 27: Industry trend in NSE active clients

(mn) FY15 FY16 FY17 FY18 FY19 FY20 1QFY21 2QFY21 FY15-2QFY21 CAGR (%)
Zerodha 0.03 0.06 0.17 0.54 0.91 1.41 1.94 2.47 123.1
RKSV 0.01 0.01 0.02 0.04 0.10 0.62 0.78 1.22 155.7
ISEC 0.60 0.56 0.62 0.80 0.84 1.08 1.12 1.20 13.5
Angel 0.16 0.17 0.23 0.36 0.41 0.58 0.77 1.01 39.8
HDFC Sec 0.35 0.41 0.48 0.60 0.67 0.72 0.75 0.80 16.4
Kotak Sec 0.27 0.25 0.27 0.37 0.44 0.57 0.64 0.68 18.3
5Paisa Capital 0.00 0.00 0.00 0.04 0.11 0.43 0.57 0.70 NA
Motilal Oswal 0.15 0.17 0.21 0.31 0.32 0.38 0.41 0.45 21.6
Axis Securities 0.12 0.18 0.26 0.41 0.42 0.27 0.30 0.36 22.2
SBICAP Securities 0.11 0.13 0.17 0.21 0.21 0.25 0.27 0.29 18.2
India Infoline 0.29 0.26 0.20 0.23 0.21 0.22 0.24 0.25 (2.2)
Edelweiss Broking 0.05 0.08 0.08 0.11 0.12 0.13 0.14 0.14 22.3
Reliance Securities 0.11 0.10 0.08 0.12 0.12 0.12 0.12 0.12 1.2
Aditya Birla Money 0.04 0.04 0.04 0.06 0.04 0.04 0.05 0.05 2.9
JM Financial 0.03 0.03 0.03 0.04 0.04 0.04 0.04 0.04 9.6
Others 2.78 2.73 3.10 4.06 3.82 3.94 4.08 4.44 8.9
Total 5.09 5.17 5.95 8.29 8.78 10.80 12.20 14.22 20.5
ISEC growth (% YoY) (5.9) 10.4 29.1 5.8 27.5 27.3 31.9
Total growth (% YoY) 1.5 15.1 39.3 5.9 22.9 36.1 58.1
Figure 28: Total client growth has slowed for ISEC, with the Figure 29: Active client growth for ISEC was strong in FY20,
increasing base; we expect a ~9% Cagr over FY20-23ii aided by new initiatives and expanded sourcing
(mn) Total clients (LHS) YoY Growth (RHS) (%) (mn) NSE active clients (mn) YoY Growth (RHS) (%)
7 6.21 16.0 2.0 35.0
1.71
6 5.64 14.0 30.0
5.18 1.48
4.77 12.0 1.5 1.29 25.0
5 4.40
4.00 10.0 1.08 20.0
4 3.60
3.20 15.0
2.80 8.0 1.0 0.80 0.84 10.0
3 0.60 0.56 0.62
6.0 5.0
2 4.0 0.5 0.0
1 2.0 (5.0)
0 0.0 0.0 (10.0)
FY21ii
FY22ii
FY23ii
FY21ii
FY22ii
FY23ii
FY16
FY17
FY18
FY19
FY20
FY15
FY16
FY17
FY18
FY19
FY20
FY15
Figure 30: While ISEC’s share of active clients has been range-bound, ADTO/active
client has been rising for ISEC since FY15
(Rs mn) ADTO/NSE active clients (Rs mn) (%)
NSE active clients/Total clients (%)
1.0 30.0
23.0 24.2
22.6 25.0
0.8 21.3
20.0 19.2
17.5 17.2 20.0
0.6
15.0
0.4
10.0
0.2 5.0
0.11 0.18 0.30 0.47 0.63 0.71 0.77 0.93
0.0 0.0
FY15 FY16 FY17 FY18 FY19 FY20 1QFY21 2QFY21
Increase in cross-sell to existing clients: ISEC has been

consistently increasing the client base to which it cross-sells
products. The number of clients with 2 or more products has
increased, from 0.58mn in FY16 to 0.97mn in 2QFY21, i.e. a Cagr of
~12%. In 2QFY21, ISEC derived revenue from 1.56mn clients, of
which 62% came from clients with 2 or more products, while 15%
came from clients contributing only equity revenue and 23% came
from those contributing only non-equity revenue. Going forward, too,
there would be a strong focus on cross-sell, in an effort to deepen
client relationships and increase customer stickiness.
Figure 31: ISEC – Number of clients with 2 or more products

(Nos in mn)
1.2
0.93 0.95 0.97
1.0
0.85
0.77
0.8 0.66
0.58
0.6
0.4
0.2
0.0
FY16 FY17 FY18 FY19 FY20 1QFY21 2QFY21
Figure 32: ISEC – Number of clients with 2 or more products as of 2QFY21
Multiple revenue drivers lower volatility

ISEC primarily has 4 main revenue streams. These include
brokerage, distribution, interest income and investment
banking/advisory income:
 Brokerage forms the predominant revenue source, contributing
55% of total revenue in FY20, of which ~86% came from retail
brokerage, with the balance contributed by institutional
brokerage.
 Distribution revenue is the next major source, contributing 23%
of the total revenue in FY20. This includes distribution of MFs
(56% of total), distribution of life insurance products (12% of
total) and distribution of other products and services (38% of
total) which also includes subscription fee on brokerage products.
 Interest income on fund-based activities is derived on ISEC’s
MTF & ESOP funding book, which it has been growing, of late.
This contributed 14% of revenue in FY20.
 Investment banking/advisory income is earned from equity
capital market services and other financial advisory services
provided to corporate clients. This contributed ~6% of revenue in
FY20.
 Other income is primarily from the treasury & trading business,
which provides the business with the liquidity it requires for its
operations and achieving a return on its funds.
Figure 33: ISEC – Trend in total revenue Figure 34: ISEC – Revenue mix (FY20)
(Rs bn) Revenue (LHS) YoY Growth (RHS) (%)
27.5 48.9 60 Brokerage
25.0 50 23.4
22.5
20.0 32.5 31.6 40 Distribution
17.5 24.9
30
15.0
20 13.6 Interest income
12.5 5.8
10.0 (0.1) 0.1 10 54.9
7.5 (7.0) (7.2) 0
5.0 5.8 Investment
FY15 12.1
FY16 11.2
FY17 14.0
FY18 18.6
FY19 17.3
FY20 17.2
FY21ii 22.7
FY22ii 24.0
FY23ii 24.0
-10 2.3
2.5 banking
0.0 -20
Treasury
Brokerage revenue impacted by yield pressure: Over FY17-20,

total brokerage revenue grew at a modest Cagr of 7%, with a 5%
Cagr in retail broking revenue (86% of the mix as of FY20) and a
20% Cagr on institutional broking revenues (14% of the mix as of
FY20). The modest revenue growth despite the sharp increase in
ADTO at a 60% Cagr was driven by a decline in blended yields.
Blended yield fell from 1.66bps in FY17 to 0.50bps in FY20. This is
attributable to:
• A general decline in yields with the advent of discount brokers,
• A decrease in equity ADTO in the overall mix from 8.0% in FY17
to 3.4% in FY20,
• A decrease in delivery volumes within the equity segment.
Figure 35: ISEC – Trend in brokerage revenue

(Rs bn) Brokerage revenue (LHS) YoY Growth (RHS) (%)
15.0 52.3 60
13.5
32.1 40.3
12.0
40
10.5
9.0
7.5 17.4 20
6.0 1.6
4.5 (6.8)
(8.9) 0
3.0 (12.5) (12.0)
1.5 7.6 6.6 7.8 10.2 9.3 9.5 13.3 12.4 10.9
0.0 -20
FY15 FY16 FY17 FY18 FY19 FY20 FY21ii FY22ii FY23ii
Figure 36: ISEC – Trend in blended broking yields

(bps)
5.0 4.65
4.5
4.0
3.5
3.0 2.62
2.5
2.0 1.66
1.5 1.10
0.70 0.59
1.0 0.50 0.50 0.40
0.5
0.0
Figure 37: Estimation of yields in the equity and derivative segments

Particulars (FY20) Value Mix (%)
ISEC ADTO (Rs bn)
Equity 26 3.4
Derivative 737 96.6
Total 763 100.0
ISEC Broking Revenue (Rs mn)

Equity 5,685 60.0*
Derivative 3,790 40.0
Total 9,476 100.0
ISEC Yield (bps)

Equity 8.75
Derivative 0.21
Blended 0.50
Source: Company, IIFL Research; Note: *mix of broking revenue is assumed
Lower dependence on broking revenue versus peers: ISEC has

a higher diversity of revenue sources as against other pure-play
brokers and, hence, it would have greater stability in revenue
generation across business cycles. While near-term challenges may
exist in certain streams, overall, there are enough structural

A well-diversified revenue tailwinds in each stream. We expect revenue Cagr of 12% over
provides greater stability to FY20-23ii. Retail broking will remain the primary revenue driver,
earnings in the long term
while distribution revenue would be boosted by introduction of new
products and interest income would grow owing to growth in the MTF
& ESOP book. Investment banking revenues have seen a sharp pick-
up in 1HFY21 and we expect the positive momentum to sustain
going forward as well.
Figure 38: ISEC’s revenue stream is more diversified than other pure-play brokers’
Broking income as % of revenue
FY20 - Total Income
(Rs mn)
Aditya Birla Money 1,737 72 68 56 54
ISEC 17,221 55 55 54 55
Reliance Securities 2,083 69 66 62 66
India Infoline 6,437 87 68 70 67
5Paisa Capital 1,081 21 77 89 67
Angel Broking 7,599 56 64 71 75
HDFC Securities 8,623 76 89 85 80
Kotak Securities 16,900 60 53 55 NA
SBICAP Securities 4,959 45 43 40 NA
Source: Company filings, CRISIL Research as per Angel Broking DRHP, IIFL Research
Activation rate for ISEC is picking up, aided by newer

initiatives like Prime and Prepaid: The activation rate is the
proportion of new clients acquired in a quarter who have also traded
during the same quarter. Activation rate for ISEC has increased over
the last six quarters to 63% in 2QFY21, from 34% in 1QFY20. This
has been primarily driven by ISEC’s new tie-up with ICICIBC as well
as its newer initiatives like Prime and Prepaid plan.
Figure 39: Activation rate has improved materially over the previous five quarters
(%)
80
68
70 63
57 58
60
50 44
40 33 34
27 26
30
20
10
0
2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21
Revised ICICI Bank (ICICIBC) tie-up is mutually beneficial:

 Within the scope of this tie-up (from Apr-2019), ISEC would pay
ICICIBC 35% of all brokerage/revenue earned from a client
sourced by ICICIBC in the first year and 25% of all
brokerage/revenue earned from the client in the second year.
 From the third year onwards, there would be no payment from
ISEC to ICICIBC.
New ICICIBC tie-up would  This incentivises bank relationship managers (RMs) to refer
aid in better targeting of
potential revenue clients who have a higher propensity to trade, as their
generating customers commission is directly linked to such referrals.
 In return, ISEC would not attach its own RM to any customer
sourced by ICICIBC for the initial two years, within which time
period the bank RM is free to continue cross-selling non-equity
products to the client.
 This is against the earlier system of selling 3-in-1 accounts to
customers who had to open a salary account with ICICIBC and
for whom this came at no extra charge.
Prime plan aiding higher activation rate and diversification of

revenue:
 The Prime plan is an annual subscription-based plan launched in
April 2019, through which customers can avail lower brokerage
charges, curated research and instant liquidity.
 It has now been open for six quarters, of which it was only
available for new customers for the first two quarters post
launch, after which it was opened to existing customers as well.
 The brokerage rates on the cash segment range from 0.15-
0.27% as against the standard rate of 0.55%, depending on the
plan chosen by the customer.
 The instant-liquidity feature ranges from Rs0.25-10mn whereby a
customer gets instant liquidity in his account up to the limit as
against the usual time of T+2 days. This is a unique feature
Of ISEC’s 1.2mn NSE compared with other players, who rely on float income.
active customers,  The Prime plan also benefits ISEC in terms of diversification of
~35% have subscribed revenue from its subscription fee.
to the Prime Plan as of
2QFY21
 The weighted average subscription fee per customer was
~Rs1,100 as of 1QFY21, implying that a majority of customers
are part of ‘Plan 1’ and this revenue is accounted under
distribution of other services. However, the offering has
subsequently been revised.
 Of the Prime customer base of 0.42mn as of 2QFY21, ~20%
were ISEC’s existing but dormant customers and, of the new
accounts sourced, ~35-40% of the customers have been opting
for the Prime plan.
 A customer’s tendency to trade is higher after having paid a
subscription fee; this would lead to an increase in volumes, thus
offsetting the pressure on yields.
 In 2QFY21, ISEC revised its offering (details below), where it
introduced a plan for Rs299/year and also lowered the
subscription fee across other price-brackets.
 While this would lower the blended fee from Prime customers,
the new plans would increase new client sign-ups and hence the
lower subscription fee would be offset by higher broking
revenues.
Figure 40: ISEC – Details of Prime plans (earlier)

Annual Brokerage -
Brokerage - Options - Instant MTF Interest
Subscription Margin
Prime plan Cash Per Lot liquidity Rate per day
Fee Futures
(%) (Rs) (Rs mn) (%)
(Rs) (%)
Plan 1 900 0.25 0.025 35 1.0 0.035
Plan 2 4,500 0.18 0.018 25 2.5 0.031
Plan 3 9,000 0.15 0.015 20 10.0 0.024
Figure 41: ISEC – Details of Prime plans (revised in 2QFY21)

MTF
Annual Brokerage -
Brokerage - Options - Instant Interest
Subscription Margin
Prime Plan Cash Per Lot liquidity Rate per
Fee Futures
(%) (Rs) (Rs mn) day
(Rs) (%)
(%)
Plan 1 299 0.27 0.027 40 0.25 0.040
Plan 2 999 0.22 0.022 35 1.00 0.035
Plan 3 1,999 0.18 0.018 25 2.50 0.031
Plan 4 2,999 0.15 0.015 20 10.00 0.024
Figure 42: ISEC – Rapid growth in the Prime customer-base, which now accounts for
~35% of ISEC’s active client base
(Nos in mn)
0.45 0.42
0.40 0.38
0.35 0.32
0.30
0.24
0.25
0.20 0.16
0.15 0.10
0.10
0.05
0.00
1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21
The Prepaid plan was a pre-existing offering, whereby customers can

pay a fixed amount at the beginning and then trade at lower
brokerage rates over a 15-year time period. There are 6 variants of
this plan, with an upfront fee ranging over Rs5,000-Rs1,50,000.
ISEC has ~0.10mn customers under the Prepaid plans, added to
0.42mn customers under Prime (total 0.52mn), both of which
together account for ~43% of ISEC’s NSE active client base as of
2QFY21.
Figure 43: ISEC – Details of Prepaid plans (earlier)

Prepaid plan Prepaid Plan Brokerage - Brokerage - Options - Per
(Rs) Cash Margin Futures Lot
(%) (%) (Rs)
Plan 1 10,000 0.25 0.025 35
Plan 2 25,000 0.22 0.022 30
Plan 3 50,000 0.18 0.018 25
Plan 4 100,000 0.15 0.015 20
Plan 5 200,000 0.12 0.012 15
Plan 6 300,000 0.09 0.009 10
Figure 44: ISEC – Details of Prepaid plans (revised in 2QFY21)

Prepaid plan Prepaid Plan Brokerage - Brokerage - Options - Per
(Rs) Cash Margin Futures Lot
(%) (%) (Rs)
Plan 1 5,000 0.25 0.025 35
Plan 2 12,500 0.22 0.022 30
Plan 3 25,000 0.18 0.018 25
Plan 4 50,000 0.15 0.015 20
Plan 5 100,000 0.12 0.012 15
Plan 6 150,000 0.09 0.009 10
Overall, we expect retail broking to remain the primary revenue

driver, aided by an expansion in sourcing channels and new
initiatives, which would aid growth in active clients. Consolidation of
the industry in favor of larger players should also benefit ISEC. While
yields have seen an expansion in 1HFY21 owing to a higher share of
cash delivery trades, overall, we expect that yields will likely
continue declining, in the face of heightened competitive intensity.
Figure 45: ISEC – Share of derivatives in overall ADTO mix remains high. Cash ADTO
witnessed an increase in 1HFY21 due to increased volatility thereby driving yields
higher, however this is unlikely to sustain.
(%) Equity Derivative
100.0
80.0
60.0 81.5 88.1 92.0 94.4 94.9

96.1 96.6
40.0
20.0
18.5 11.9
0.0 8.0 5.6 3.9 3.4 5.1
FY15 FY16 FY17 FY18 FY19 FY20 1HFY21
Institutional broking revenue growing off a low base: ISEC is

focusing on increasing the flow business and continued traction in
block deals. It was able to gain market share in FY20 on account of a
significant improvement in ranking, with highly active clients and
improved performance in block deals. It was also able to increase
institutional future market-share on account of activation of inactive
global banks, increased wallet share of existing customers and
focusing on AIFs and regional hedge funds.
Figure 46: ISEC – Institutional brokerage revenue has increased to 13.6% of the
brokerage mix in FY20 from 7.0% in FY15, owing to its growth, off a lower base
(Rs bn) Institutional Brokerage revenue (LHS) YoY Growth (RHS) (%)
1.4 55.4 60
44.5
1.2 50
1.0 37.8 40
0.8
30
0.6
20
0.4 9.8 9.8
0.2 1.8 10
0.5 0.5 0.7 1.1 1.2 1.3
0.0 0
FY15 FY16 FY17 FY18 FY19 FY20
Investment banking revenue to grow strongly on a low base

in FY20: ISEC is one of the largest investment banks in India. In
FY20, it managed 5 IPOs with a market share of 32% by size, while
it completed a total of 30 deals in total. Despite the overall number
ISEC would remain a
leading player in the of deals in the market remaining muted in FY19/20, ISEC has
investment banking space managed to defend its position. Overall revenues in this segment are
going forward, with strong cyclical and have been on a downward trend since the peak in FY18,
revenue growth in the
on account of lower economic activity. ISEC will remain a dominant
segment
player in this space, given its strong parentage and brand. The
outlook in this has improved significantly with the increase in activity
especially in 2QFY21. We expect strong growth in the medium term,
at a 26% Cagr over FY20-23ii.
Figure 47: Equity-markets activity by corporates – Number of deals has remained

muted in FY19/20; however, deal value picked up significantly in FY20, despite the
COVID-19 impact towards the end of the year
IPO/FPO/
OFS (SE) Rights QIP IPPs Total
InvIT/REIT
Rs bn
FY16 145 198 92 144 0 579
FY17 282 84 33 137 0 536
FY18 889 174 214 575 47 1,899
FY19 227 217 20 105 0 569
FY20 227 173 560 512 0 1,472
No. of deals
FY16 24 18 12 20 0 74
FY17 25 28 12 22 0 87
FY18 47 37 20 51 2 157
FY19 17 28 8 13 0 66
FY20 14 26 13 13 0 66
Figure 48: Number of IB deals managed by ISEC has Figure 49: We expect investment banking revenue to grow
remained high over FY19/20, despite the decline in overall at a 26% Cagr over FY20-23ii
activity
(Nos) (Rs bn) IB/Advisory revenue (LHS) (%)
40 36 YoY Growth (RHS)
34 2.5 63.0 80
35 47.6
30 60
30 2.0 38.7 29.2
40
25 15.3
1.5 3.8 5.3 20
19
20 16 16 -12.8
15 1.0 0
15 13
-37.9 -20
10 0.5
0.7 1.0 1.4 1.8 1.6 1.0 1.6 1.9 2.0 -40
5 0.0 -60
FY21ii
FY22ii
FY23ii
FY15
FY16
FY17
FY18
FY19
FY20
0
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
MTF & ESOP funding book to grow, going forward: In FY20,

ISEC’s MTF & ESOP funding book peaked at ~Rs15.0bn, from
Rs4.6bn as of FY19, before it eventually wound down to Rs5.8bn by
FY20 due to increased market volatility caused by COVID-19. Post
FY20, the book once again grew to Rs15.0bn in 1QFY21 and then
Rs18.7bn in 2QFY21. The MTF space has relatively lower competition
and larger players have the advantage, as the MTF book cannot
exceed 5 times a company’s networth. The ESOP funding book gives
ISEC access to premium clientele after it on-boards a corporate for
ESOP funding. Going forward, the company expects this book to
grow further, as it attempts to diversify its revenue sources.
ISEC brought down the Figure 50: ISEC – Trend in MTF & ESOP funding book
MTF/ESOP portfolio in (Rs bn)
4QFY20 to protect itself
against market volatility 20.0 18.7
18.0
16.0 15.0
14.0
11.5
12.0
10.0
8.0 6.8
5.3 5.8
6.0
4.0
2.0
0.0
1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21
ISEC’s mutual-fund AUM and commission income growth is

higher than industry: ISEC had Average Assets Under
Management (AAUM) of Rs334bn, as of FY20, which made it the
second-largest non-bank mutual-fund distributor. Commissions in
the segment were under pressure in FY20, given regulatory changes,
including a ban on upfront commissions and the impact of lower
Total Expense Ratio (TER) for AMCs being passed on to distributors
in the form of lower commissions. The mutual fund industry is
expected to grow at ~12-13% Cagr over FY20-24 as per IIFL
estimates and commissions are unlikely to decline materially from
FY20 levels (63bps of AAUM). We expect ISEC’s MF distribution

revenue to grow at an 8% Cagr over FY21-23ii.
Figure 51: Mutual-fund industry − Average AUM has grown Figure 52: Mutual-fund industry − Closing AUM is expected
at a 13% Cagr over FY10-20 to reach Rs36tn by FY24 as per IIFL estimates
(Rs tn) Average AUM (LHS) YoY Growth (RHS) (%) (Rs tn)
30 27.0 40.0 40 12-13% Cagr 35.7
24.5 35
25 23.1 30.0
30 16% Cagr
20 18.3 20.0 23.8 22.3
25 21.4
13.5 20 17.6
15 11.9 10.0
15 10.8 12.3
10 7.6 7.0 6.6 8.2 9.1 0.0
10
5 (10.0) 5
0
0 (20.0)
FY24ii
FY20
FY15
FY16
FY17
FY18
FY19
FY12
FY13
FY14
FY10
FY11
FY15
FY16
FY17
FY18
FY19
FY20
Source: AMFI, IIFL Research; Note: Average AUM is for the last Source: AMFI, IIFL Research
quarter of the financial year
Figure 53: ISEC – Trend in MF distribution revenue and commission

(Rs bn) MF Distribution Revenue (LHS) Commission (RHS) (%)
3.0 1.3 2.8 1.4

2.7 2.6
2.4 1.2
2.5 2.3 2.2
0.9
1.0
2.0 0.8
1.7 0.8
1.5 0.7 0.8
0.6 0.6 0.6 0.6
1.5
1.1 0.6
1.0
0.4
0.5 0.2
0.0 0.0
Figure 54: Growth in ISEC’s share of MF commissions and AUM has outpaced the
industry, leading to an increase in market share, while yields have been under
pressure
CAGR
Particulars %
FY14 FY15 FY16 FY17 FY18 FY19 FY20
(Rs bn) (FY14-
FY20)
Commission
ISEC 0.75 1.59 1.11 1.73 3.17 3.19 2.78 24.4
Industry 26.03 47.45 36.58 50.00 85.34 79.48 61.35 15.4
ISEC (%) 2.9 3.4 3.0 3.5 3.7 4.0 4.5
AUM
ISEC 81 123 160 203 298 345 334 26.6
Industry 4,062 5,159 6,069 6,899 9,209 10,080 10,081 16.4
ISEC (%) 2.0 2.4 2.6 2.9 3.2 3.4 3.3
Commission/AUM (%)
ISEC 0.93 1.30 0.70 0.85 1.06 0.92 0.83
Industry 0.64 0.92 0.60 0.72 0.93 0.79 0.61
Source: AMFI, IIFL Research
Figure 55: ISEC – Trend in MF SIP count

(Nos. in mn)
0.68
0.67
0.66
0.66
0.65
0.64
0.63 0.63
0.62
0.60
FY18 FY19 FY20 1QFY21 2QFY21
Life insurance distribution revenue has remained muted, open

architecture an opportunity: Life insurance distribution revenue
for ISEC has remained steady over FY18-20, at ~Rs0.5bn/year,
driven by an increase in yields despite a decline in total premium
over the period. Overall industry total premium grew ~6% YoY in
FY20 and is expected to grow at an 11-13% Cagr over FY20-25,
driven by an increase in financial savings and increased awareness
about insurance products. Currently, ISEC distributes life insurance
products of ICICI Prudential Life Insurance only. Adoption of an open
architecture in life-insurance distribution would provide a significant
boost to revenues going forward.
Figure 56: Life insurance total premium is expected to grow at an 11-13% Cagr over
FY20-25, driven by an increase in financial savings and growing awareness of
insurance products
(Rs tn)
12
11-13% Cagr 10.0
10
8 11.6% Cagr
5.7
6 4.6 5.1
4.2
3.3 3.7
4
2
0
FY18
FY25P
FY15
FY16
FY17
FY19
FY20
Source: IRDAI, CRISIL Research as per Angel Broking DRHP, IIFL Research
Figure 57: Corporate agency remains the largest channel for life insurance
distribution, contributing 69-77% of premiums and receiving 64-74% of commission
payouts from the four largest private life insurers, in FY20
FY20 HDFC Life IPRU Life SBI Life Max Life
Premium mix by channel (%)
Agents 14.5 23.7 24.4 24.0
Brokers 8.6 6.9 0.3 1.0
Corporate Agency 76.9 69.4 75.3 75.0
Total 100.0 100.0 100.0 100.0
Commission mix by channel (%)

Agents 18.6 25.1 35.4 25.9
Brokers 10.0 7.3 0.3 0.4
Corporate Agency 71.4 67.6 64.3 73.6
Total 100.0 100.0 100.0 100.0
Source: Respective company filings, IIFL Research
Figure 58: ISEC – Trend in life insurance distribution revenue and commission
(Rs bn) Life insurance Revenue (LHS) Yield (RHS) (%)
1.2 8.6 10.0

8.3 8.5
1.0 8.0
0.7 6.1 6.0 6.0 6.0
0.8 5.3 5.3
0.6 6.0
0.6 0.5 0.5 0.5 0.5 0.5
0.5 0.4
4.0
0.4
0.2 2.0
0.0 0.0
Distribution revenue from other products to grow steadily:

Distribution revenue from other services includes general and health
insurance, fixed income products, PMS, AIF, NPS, FDs, corporate
bonds, loans etc. The larger revenues are derived from distribution
Income from distribution of of fixed income products, PMS, AIF and IPO distribution fees. In
other products could
become a more important general insurance, ISEC exclusively distributes products of ICICI
contributor in overall Lombard General Insurance, whereas in health insurance it has tie-
revenue over the longer ups with Religare Health Insurance and Star Health & Allied
term Insurance in addition to ICICI Lombard. Further, ISEC started
distributing ICICIBC loan products in FY20 and has tie-ups with
multiple banks in the home loan and LAP segments. Also, expansion
in the product suite and a higher number of partnership tie-ups
should aid growth in distribution revenue from other products, going
forward.
Wealth Management franchise to augment revenue: India

continues to outpace global markets, in the growth of High Net
Worth Individuals (HNIs) and the incremental wealth allocation being
higher in favour of financial assets should continue to benefit the
wealth management industry. ISEC’s wealth management business
was set up in FY10 and, as of 2QFY21, has a total AUM of Rs1.15tn
with ~36,000 clients. ISEC derives ~55% of its revenue in this
segment from clients with a >10-year vintage; however, clients
acquired in the last 5 years have a higher AAUM and Average
Revenue Per User (ARPU). Moving ahead, the objectives in this
segment are to increase the share of recurring assets and to
increase the yield on transactional assets. Recurring assets include
those assets that have a trail income like MFs, PMS and AIF, while
transactional assets include demat accounts, bonds, structured
finance etc.
Figure 59: ISEC – Wealth Management details

FY15 FY16 FY17 FY18 FY19 FY20 1QFY21 2QFY21
Assets (Rs bn)
Recurring 55 68 109 159 192 178 204 215
Transactional 346 395 574 747 798 654 793 938
Total 401 463 683 906 990 832 997 1,153
Assets (%)
Recurring 13.7 14.7 16.0 17.5 19.4 21.4 20.5 18.6
Transactional 86.3 85.3 84.0 82.5 80.6 78.6 79.5 81.4
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Revenue (Rs bn)

Recurring 0.62 0.46 0.89 1.33 1.36 1.51 0.37 0.49
Transactional 0.72 0.70 0.81 1.03 0.82 1.08 0.40 0.52
Total 1.34 1.16 1.70 2.36 2.18 2.59 0.77 1.01
Revenue (%)
Recurring 46.3 39.7 52.4 56.4 62.4 58.3 48.1 48.5
Transactional 53.7 60.3 47.6 43.6 37.6 41.7 51.9 51.5
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Yields (%)
Recurring 0.76 1.01 0.99 0.77 0.82 0.77 0.94
Transactional 0.19 0.17 0.16 0.11 0.15 0.22 0.24
Total 0.27 0.30 0.30 0.23 0.28 0.34 0.38
Operating leverage to drive reduction in cost ratios:

Management focus on cost optimization led to a further 4.5% decline
in non-finance costs in FY20 (despite a COVID provision of
Rs0.09bn), after a 3.3% decline in FY19. This was made possible by

a continued reduction in employee headcount since FY18 as well as
branch rationalization carried out in FY20, aided by increasing
digitization. According to the management, branches could be
reduced further, while employee headcount could also come-off
slightly. As of 1HFY21, total branches have reduced to 156, from 172
as of FY20, while employee head count has reduced to 3,669 from
3,790 as of FY20. ISEC is now focusing on lowering its fixed costs;
however, it is comfortable with an increase in variable costs, which
are linked to revenue. Currently out of its total operating expenses,
~35-40% of expenses are variable in nature. We expect an 8% Cagr
in operating expenses over FY20-23ii, which should aid cost-to-
income ratio reduction of ~520bps over the same period.
Figure 60: ISEC has managed to lower its employee Figure 61: ISEC reduced its branch network by ~15% in
headcount, aided by sustained investment in its technology FY20; further branch rationalization ongoing
platform and digitization of services
(Nos) Employees (LHS) YoY Growth (RHS) (%) (Nos) Branches (LHS) YoY Growth (RHS) (%)
4,400 10.0 250 224 218 5.0
4,180 200 199 200 200
4,200 4,051 5.0 200 0.0
4,010 172
3,909 156
4,000
3,804 3,790 0.0 150 (5.0)
3,800 3,653 3,669
(5.0) 100 (10.0)
3,600
3,400 (10.0) 50 (15.0)
3,200 (15.0) 0 (20.0)

FY14
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY15
FY16
FY17
FY18
FY19
FY20
1HFY21
1HFY21
Figure 62: We expect a considerable reduction in cost-to-income ratio over FY20-23ii

(%)
75.0 66.7
62.8 62.8
60.0 54.2 56.2 56.4
50.2 50.8 51.1
45.0
30.0
15.0
0.0
High profitability to sustain: Overall, we expect a 12% Cagr in

revenue over FY20-23ii, driven by the broking business. This would
mainly be on account of increase in ADTO, as yields would remain
under pressure post FY21. Distribution revenue is expected to
remain largely flat in FY21ii, owing to COVID-19, but should recover
in FY22/23ii. Interest income should witness healthy growth, driven
by growth in the MTF & ESOP book, while investment banking
income would remain muted in the near term. On the cost front, we
expect a ~520bps improvement in the cost-to-income ratio over
FY20-23ii, driven by management focus on lowering fixed costs

through branch and employee rationalization, along with increased
digitization. This would lead to ISEC’s PBT margin expanding, from
43.6% in FY20 to 48.9% by FY23ii, while growth in PAT margin
would be slightly higher, owing to the lower tax rate. ISEC would
likely continue to pay out higher dividends owing to its less capital-
intensive business, and dividend payout ratio would range from ~60-
65%.
Figure 63: Sensitivity analysis key assumptions (% change in revenue and profit for corresponding change in assumption)
Revenue PAT
(Rs mn) (Rs mn) Target Price
Sensitivity Analysis
(Rs)
FY21ii FY22ii FY23ii FY21ii FY22ii FY23ii
Base Case 22,704 24,031 24,046 8,455 8,847 8,790 600
Broking
0.05bps lower blended yield (5.1) (5.3) (5.9) (10.3) (10.8) (12.0) 530
0.10bps lower blended yield (10.2) (10.7) (11.7) (20.5) (21.7) (24.0) 460
10% lower volume (6.0) (5.3) (4.7) (12.1) (10.8) (9.6) 540
20% lower volume (12.1) (10.7) (9.4) (24.2) (21.7) (19.2) 490
Investment banking
10% lower income (0.7) (0.8) (0.8) (1.4) (1.6) (1.7) 590
20% lower income (1.4) (1.6) (1.6) (2.9) (3.2) (3.4) 580
30% lower income (2.1) (2.3) (2.5) (4.3) (4.7) (5.0) 570
Distribution
10% lower income (1.8) (1.9) (2.2) (3.6) (3.9) (4.6) 570
20% lower income (3.6) (3.9) (4.5) (7.3) (7.8) (9.2) 550
30% lower income (5.4) (5.8) (6.7) (10.9) (11.8) (13.8) 520
Figure 64: ISEC – trend in profitability

(Rs bn) Net Profit (LHS) YoY Growth (RHS) (%)
10.0 229.5 250
9.0
8.0 200
7.0 150
6.0 63.5
5.0 100
56.0
4.0 41.8
3.0 10.4 50
4.6 (0.6)
2.0 (18.8) (11.3)
0
1.0 2.9 2.4 3.4 5.5 4.9 5.4 8.5 8.8 8.8
0.0 -50
Figure 65: ISEC – trend in RoA and RoE

(%) ROE (LHS) ROA (RHS) (%)
100.0 30.0
22.5
75.0 20.0 19.7
20.0
13.0 11.9 14.3
50.0 17.3 11.3
10.0
10.0
25.0
97.7 63.6 76.3 82.8 51.8 48.0 58.1 47.1 39.6

0.0 0.0
Figure 66: ISEC - Key earnings drivers

Y/e 31 Mar (%) FY19 FY20 FY21ii FY22ii FY23ii
ISEC ADTO (Rs bn) 533.0 764.0 901.5 991.7 1,090.8
Brokerage Yield/ADTO (bps) 0.70 0.50 0.59 0.50 0.40
ISEC MF AUM (Rs bn) 347.0 362.0 356.6 399.4 447.3
MF dist commission (% of AUM) 0.78 0.63 0.62 0.60 0.58
ISEC Life Insurance Premium (Rs bn) 8.9 8.0 7.2 7.9 8.7
Life ins commission (% of premium) 5.3 6.1 6.0 6.0 6.0
Operating costs growth (3.8) 0.2 17.3 7.0 0.8
Cost/income ratio 56.2 56.4 50.2 50.8 51.1
Tax rate 35.2 28.0 25.2 25.2 25.2
Figure 67: ISEC – RoE Decomposition

Y/e 31 Mar (%) FY19 FY20 FY21ii FY22ii FY23ii
Brokerage income 24.7 20.8 22.5 15.9 12.5
Distribution income 11.4 8.9 7.0 5.9 6.2
Interest and other income 4.8 5.2 5.4 5.8 5.9
Investment banking/advisory income 4.2 2.2 2.7 2.4 2.2
Treasury & Trading income 0.7 0.9 0.8 0.7 0.7
Total operating income 45.8 37.9 38.5 30.8 27.5
Employee cost 14.7 11.7 10.9 8.6 8.3
Finance cost 1.1 1.9 1.9 1.8 0.8
Depreciation cost 0.4 1.3 1.0 0.8 0.8
Other operating expenses 9.5 6.4 5.6 4.4 4.2
Total operating expenses 25.7 21.3 19.3 15.6 14.1
Profit before tax 20.1 16.5 19.2 15.1 13.4
Taxes 7.1 4.6 4.8 3.8 3.4
Net profit 13.0 11.9 14.3 11.3 10.0
Leverage 4.0 4.0 4.1 4.2 3.9
RoE 51.8 48.0 58.1 47.1 39.6
Figure 68: ISEC P/E Chart

(x) 12m fwd PE Avg +/- 1SD
30
27
24 +1 Std. Dev:18.9x
21
18
Avg:15.3x
15
12
9 -1 Std. Dev:11.6x
6
Apr-18 Oct-18 May-19 Nov-19 Jun-20 Jan-21
Key Risks
• Losing out incremental market share to discount brokers:
ISEC has slipped to the third position in market share of NSE
active clients. A delayed launch of the Do-It-Yourself service,
higher brokerage and a less nimble platform which is primarily
dependent on ICICIBC have resulted in ISEC being unable to gain
a larger portion of NSE active clients in 1HFY21. While we
maintain that ISEC continues to book healthier revenues/profits
per client and its business model is more suited to maximizing
these, loss of market share to discount brokers remains an area
of concern.
• Pressure on broking yields, with increasing competition:
Yields have been on the decline in the broking segment over an
extended period of time, and this has been exacerbated with the
entry of discount brokers. Over FY17-20 blended yield for ISEC
decreased from 1.66bps to 0.50bps. The decline has been
witnessed in both, the cash and derivatives segments. Also,
intensifying competition could cause further yield pressure. Yields
in 1HFY21 have improved to ~0.60bps driven by an increase in
the share of cash delivery trades; however this is not expected to
sustain.
• Subdued ADTO volumes going forward: Overall ADTO
volumes for the industry have been increasing since FY17, with a
sharp increase in FY18 driven by the derivatives segment. Going
forward, adverse movement in total industry volumes could dent
revenues for ISEC.
• Higher than expected growth in operating expenses:
Management focus would remain on controlling growth in
operating expenses by lowering fixed costs through continued
branch and employee rationalization. If this does not go as
planned, it would lower profitability to that extent.
• High revenue concentration among top clients in retail
broking: For the retail broking industry as a whole, the top 5%
clients account for ~60% of overall revenues. This makes brokers
susceptible to disruptions in these major clients. However, this is
an industry risk and not specific to ISEC.
New margin regulations

Figure 69: Impact of regulatory changes regarding margin requirements
With effect from Key Regulation Impact
For the purpose of providing collateral in form of - This was enacted due to the difficulty faced in tracing
securities as margin, a client shall pledge securities custody of shares under the earlier system, where
with Trading Member (TM), and TM shall re-pledge the technically a broker could pledge one client's securities
Sep-2020 same with Clearing Member (CM), and CM in turn shall as margin for another client.
re-pledge the same to Clearing Corporation (CC). The - This could have caused disruption in trading volumes
complete trail of such re-pledge shall be reflected in if market participants were not adequately prepared to
the de-mat account of the pledgor. implement this within their systems.
- This has no impact for ISEC (or other large brokers for
that matter), because ISEC was taking 100% of money
upfront for a delivery trade, and for a sell trade ISEC
If a client is undertaking an investment/delivery
was always completing the settlement of securities on
Sep-2020 transaction, he will have to pay a minimum of 20% of
T-day and hence will not have any impact.
the consideration for buying/selling.
- Some small brokers allowed the client to buy shares –
but did not charge anything for T+2 days. This would
have a greater impact for these brokers.
- This is being implemented in a phased manner from
December 2020 and these regulations would require
standardized margin to be collected for all products
from customer upfront before he enters into a trade.
- These regulations will likely have an impact on market
volume and revenue in the short term.
Upfront margin collection regulations, for intraday
Dec-2020 - From December 2020, a client would need to deposit
products.
25% of his peak margin obligations through the day
and this would increase by 25% every 3 months.
- Further, clients earlier had to meet margin
requirements in their account at the end of the day,
and they would now have to meet their obligations
during the day.
Company background
ICICI Securities (ISEC) is a technology-based firm offering a wide
range of financial services, including investment banking,
institutional broking, retail broking, private wealth management and
financial product distribution. The company was incorporated on
March 9, 1995 as ICICI Brokerage Services Limited and is promoted
by ICICI Bank. It is one of the pioneers in the e-brokerage business
in India. ISEC is the third-largest equity broker in India, in terms of
NSE active clients (1.20mn) as of 2QFY21. The company is
headquartered in Mumbai, and operates through offices in India, the
United States, Singapore and Oman.
Figure 70: Revenue mix by segment (FY20)
Distribution
23.4%
Interest
Brokerage income
54.9% 8.4%
Investment
banking
Treasury 5.8%
2.3%
Figure 71: Shareholding pattern (3QFY21)
FII
4.6%
DII
8.7%
ICICI Bank
(Promoter)
75.0%
Other
11.7%
Key Business Segments

ISEC’s principal businesses include brokerage and distribution,
investment banking, and treasury and trading. The brokerage and
distribution business offers various brokerage services, third-party
product distribution and value-added services to customers. The
retail brokerage business accounted for 86.4% of broking revenue
and 47.5% of total revenue in FY20. Over the years, ISEC has
diversified its revenue stream to continue reducing volatility in
revenues associated with the brokerage business. As a result, the
contribution of revenue from the brokerage business to the overall

revenue has decreased, from 63.3% in FY13 to 54.9% in FY20.
Figure 72: ISEC – Products and services offered

Business segment Products and services
Investment and trading across asset classes, including Equity, Derivatives, Currency, Margin Trading
Retail Equity
Funding, etc.
MF (Mutual Fund), Gold Bonds, ETFs (Exchange Traded Funds), NPS (National Pension Scheme),
Distribution of Retail Corporate FDs (Fixed Deposits) and Bonds, Insurance (Life, General and Business), Credit (Home
Financial Products Loans, Loan against Securities / Property / FD / Bonds / MF), Rental Discounting, Asset Financing,
Overdraft.
- Investment solutions like Equity, Fixed Income, Offshore and Alternate Investments; value-added
Private Wealth services like Protection, Mortgages & Loans, Tax Advisory, Estate Planning and Real Estate.
Management - Engagement with customers on business needs like raising equity capital, debt syndication and
monetizing assets.
- Equity brokerage service for domestic and international institutional clients.
Institutional Equity - Value-added products and services, including Block Deal, Algo Trading, Corporate Access, Investor
Meets, and Equity Research.
Issuer Services and Full service investment bank providing services including, Equity Capital Market, debt advisory,
Advisory Mergers & Acquisitions, Advisory, Private Equity Services, Structured Products, and Restructuring.
Figure 73: ISEC – Board of Directors

Name Designation
Vijay Kumar Chandok Managing Director
Ajay Saraf Wholetime Director
Anup Bagchi Director
Subrata Mukherji Director
Pramod Rao Director
Vinod Kumar Dhall Director
Vijayalakshmi Rajaram Iyer Director
Ashvin Dhirajlal Parekh Director
Company snapshot
Background: ICICI Securities (ISEC) is a leading technology-based securities firm in India. The
company was incorporated on March 9, 1995 as ICICI Brokerage Services Limited and is promoted
by ICICI Bank. It is one of the pioneers in the e-brokerage business in India. The company offers
wide range of financial services including brokerage, financial product distribution and investment
banking and treasury and trading services. ISEC is the second-largest equity broker in India as of
FY20 with retail brokerage contributing 47.5% of total revenue. The company is headquartered in
Mumbai, and operates through offices in India, the United States, Singapore and Oman.
Revenue mix (FY20) Revenue growth

Inv. Revenue (LHS) (Rs b) (%)
(Rs b)
banking, Treasury, YoY growth (RHS)
6% 2% 25 35.0%
30.0%
Interest Brokerag 20 25.0%
income, e, 55% 20.0%
14% 15 15.0%
10 10.0%
5.0%
Distributi 5 0.0%
on, 23% -5.0%
0 -10.0%
FY21ii
FY22ii
FY23ii
FY19
FY17
FY18
FY20
EPS PE Chart
20.0
17.2 16.8 12m fwd PE Avg +/- 1SD
18.0
15.2
16.0 30.0
14.0 (x)
10.5 27.0
12.0
9.1 24.0
10.0 7.4
8.0 21.0
6.0 18.0
4.0 2.8
15.0
2.0
12.0
0.0
9.0
FY14
FY15
FY16
FY17
FY18
FY19
FY20
6.0
Apr-18 Oct-18 May-19 Nov-19 Jun-20 Jan-21
Assumptions Management
Y/e 31 Mar, Parent FY19A FY20A FY21ii FY22ii FY23ii Name Designation
ADTO (Rs bn) 533.0 764.0 901.5 991.7 1090.8
Brokerage Yield (bps) 0.7 0.5 0.6 0.5 0.4 Vijay Chandok MD & CEO
MF AUM (Rs bn) 347.0 362.0 356.6 399.4 447.3 Ajay Saraf Executive Director
MF dist comm (% of AUM) 0.8 0.6 0.6 0.6 0.6
Life Ins Premium (Rs bn) 8.9 8.0 7.2 7.9 8.7 Harvinder Jaspal CFO
Life Ins comm (% of prem) 5.3 6.1 6.0 6.0 6.0
Operating costs growth (%) (3.8) 0.2 17.3 7.0 0.8
Cost/income ratio (%) 56.2 56.4 50.2 50.8 51.1
Tax rate (%) 35.2 28.0 25.2 25.2 25.2
Source: Company data, IIFL Research
Financial summary
Income statement summary (Rs m)
Y/e 31 Mar, Parent FY19A FY20A FY21ii FY22ii FY23ii
Brokerage income 9,328 9,476 13,297 12,396 10,908
Distribution income 4,279 4,031 4,112 4,634 5,409
Interest income 1,797 2,350 3,196 4,558 5,130
Investment banking/advisory 1,601 994 1,621 1,870 1,968
income
Treasury & trading income 265 398 478 573 630
Total operating income 17,270 17,249 22,704 24,031 24,046
Employee expenses 5,545 5,338 6,405 6,726 7,264
Finance costs 423 864 1,123 1,441 680
Depreciation 150 614 602 614 675
Other operating expenses 3,580 2,905 3,275 3,427 3,681
Total operating expenses 9,698 9,720 11,406 12,208 12,299
Profit before tax 7,572 7,529 11,299 11,823 11,747
Taxes 2,665 2,109 2,844 2,976 2,957
Reported net profit 4,907 5,420 8,455 8,847 8,790
Balance sheet summary (Rs m)

Net loans & advances 4,033 5,709 28,544 34,252 41,103
Other interest-earning assets 29 25 27 30 33
Total interest-earning assets 4,061 5,733 28,571 34,282 41,136
Fixed assets 476 2,061 2,267 2,494 2,743
Other assets 42,109 36,634 42,700 45,947 48,377
Total assets 46,646 44,428 73,538 82,723 92,255
Other interest-bearing liabilities 4,473 14,975 37,438 41,182 45,300
Total interest-bearing liabilities 4,473 14,975 37,438 41,182 45,300
Non-interest-bearing liabilities 31,700 17,358 19,093 21,003 23,103
Total liabilities 36,173 32,333 56,532 62,185 68,403
Total Shareholder's equity 10,473 12,095 17,007 20,539 23,852
Total liabilities & equity 46,646 44,428 73,538 82,723 92,255
Ratio analysis - I
Balance Sheet Structure Ratios
(%)
Loan Growth (30.3) 41.6 400.0 20.0 20.0
Borrowings Growth (33.5) 234.8 150.0 10.0 10.0
Growth in Total Assets 62.3 (4.8) 65.5 12.5 11.5
Profitability Ratios (%)
PBT Margin 43.8 43.6 49.8 49.2 48.9
PAT Margin 28.4 31.4 37.2 36.8 36.6
ROA 13.0 11.9 14.3 11.3 10.0
ROE 51.8 48.0 58.1 47.1 39.6
Net Profit Growth (11.3) 10.4 56.0 4.6 (0.6)
FDEPS Growth (11.3) 10.4 56.0 4.6 (0.6)
Efficiency Ratios (%)
Cost to Income Ratio 56.2 56.4 50.2 50.8 51.1
Salaries as % of Non-Interest costs 57.2 54.9 56.2 55.1 59.1
Ratio analysis - II
Brokerage Yield/ADTO (bps) 0.70 0.50 0.59 0.50 0.40
Life ins commission (% of 5.35 6.14 6.00 6.00 6.00
premium)
MF dist commission (% of AUM) 0.78 0.63 0.62 0.60 0.58
Total clients (mn) 4.4 4.8 5.2 5.6 6.2
Active clients (mn) 0.8 1.1 1.3 1.5 1.7
Branches (Nos.) 200 172 151 156 164
Employees (Nos.) 4,051 3,790 3,638 3,748 3,935
Dividend Payout Ratio (%) 72.2 65.4 62.9 61.9 63.0
NOTES
NOTES
Disclosure : Published in 2021, © IIFL Securities Limited (Formerly ‘India Infoline Limited’) 2021
India Infoline Group (hereinafter referred as IIFL) is engaged in diversified financial services business including equity broking, DP services, merchant
banking, portfolio management services, distribution of Mutual Fund, insurance products and other investment products and also loans and finance
business. India Infoline Ltd (“hereinafter referred as IIL”) is a part of the IIFL and is a member of the National Stock Exchange of India Limited
(“NSE”) and the BSE Limited (“BSE”). IIL is also a Depository Participant registered with NSDL & CDSL, a SEBI registered merchant banker and a
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Our previous KYC reports (click on thumbnail to download)
Dabur India Bharti Airtel BUY Tube Investments BUY

BUY BUY
Zomato BUY
CMP Rs512 A larger canvas to paint on CMP Rs515 Beneficiary from market consolidation FY20 revenue split (%) ‘Delivering’ value on road to profitability! CMP Rs606 Leveraging manufacturing expertise
Target 12m Rs600 (17%) Target 12m Rs604 (17%) Zomato - FY20 revenue split (%) Target 12m Rs680 (12%)
Evolving consumer preference for Ayurvedic products, new Bharti is our top pick in the telecom sector, as it remains Zomato is India’s largest food tech company, with market We initiate coverage on Tube Investments of India (TI) with
Market cap (US$ m) 12,195 Market cap (US$ m) 38,188 Market cap (US$ m) 1,544
product launches, entry into new categories, emergence of e- well-placed to benefit from improved industry structure, Dining leadership in delivery and restaurant classifieds. We believe a BUY and TP of Rs680. TI is leveraging its manufacturing and
Enterprise value (US$ m) 12,171 Enterprise value (US$ m) 53,886 likely expansion in share of wallet and falling spectrum & Delivery out, Zomato is on the cusp of reaching profitability and value Enterprise value (US$ m) 1,580 R&D expertise to maintain leadership as tier-2 auto
commerce and efforts to rationalise cost & expand 14%
Bloomberg DABUR IN distribution will result in Dabur’s profit compounding at a low Bloomberg BHARTI IN equipment capex intensity. We expect Bharti’s revenue
, 82% creation, driven by 7x growth in revenues to US$2.2bn and Bloomberg TIINDIA IN component supplier as well as to grow the non-auto, exports
B2B ~US$500m EBITDA by FY26ii. This would be driven by a
Sector FMCG teens rate for a long time. This, coupled with able leadership Sector Telecom market share (RMS) in India mobile to rise, from 33% in Sector Metals and railways businesses. The ingrained focus on growth,
supplies
and a ~20% valuation discount to HUL makes Dabur an 2QFY21 to 37% in 3 years. India non-mobile and Africa , 4% trifecta of: i) an improved market structure towards two large profitability, RoCE and cash generation is visible in the
17 December 2020 attractive investment. We upgrade to BUY with a price target 17 December 2020 businesses remain strong. We estimate 29%/18% Ebitda players, ii) faster adoption of food delivery, catalysed by the 1 October 2020 company’s financials with ROE improving to 19% in FY20.
of Rs.600. Cagr for India mobile/consol over FY21-23, and RoCE current pandemic, and iii) improved unit cost economics and Recent announcement for acquisition of 58.6% stake in CG
52Wk High/Low (Rs) 536/385 52Wk High/Low (Rs) 612/362 jumping nearly 1000bps in 2 yrs. BUY with DCF TP Rs604. reduced subsidies resulting in EBITDA profitability. We 52Wk High/Low (Rs) 682/254 Power will drive further diversification away from autos, as
Shares o/s (m) 1767 A play on rising preference for Ayurveda: Two-thirds of Dabur’s Shares o/s (m) 5456 believe Zomato is on the final leg of its funding-needs journey Shares o/s (m) 188 capital support and mfg. expertise drive a turnaround.
Daily volume (US$ m) 27 Daily volume (US$ m) 133 Top 2 players consolidating market share: The industry shake- and would become self-sufficient on cash generation from Daily volume (US$ m) 1
domestic sales are directly or indirectly linked to naturals/Ayurveda, Revenue trajectory
Dividend yield FY22ii (%) 0.7 Dividend yield FY22ii (%) 0.8 up that ensued post JIO’s entry has resulted in a 3+1 market FY22-23. While competition from Swiggy will remain intense, Dividend yield FY21ii (%) 0.7 Strong play on recovery in the domestic auto market: TI is a
thus granting a differentiated positioning in a cluttered FMCG Food delivery GMV (USD bn)
Free float (%) 32.1 Free float (%) 43.8 configuration. In our view, the industry is moving to a near 2-player we do not see any other player holding meaningful muscle in Free float (%) 52.1 leading tier-2 vendor for domestic auto OEMs. 55% of its
market. Further, Dabur has a well charted growth path in terms of Overall revenue (USD bn)
structure – JIO and Bharti – with Vi likely to lose RMS as it struggles 20 the medium term, with potential for both merging over time. revenue/Ebit share is backed by strong quality & service levels, deep
scaling some Ayurvedic ethicals products via the OTC route and Shareholding pattern (%)
Shareholding pattern (%) Shareholding pattern (%) financially. If upsides to our current steady-state RMS assumption of 16.0 We believe Zomato could reach valuation of up to US$7bn in integration in manufacturing with OEMs, well-spread manufacturing
gradually convert some OTC products into mainstream FMCG Promoter 47.9
Promoter 67.9 Promoter 56.2 37% for Bharti eventuate, each ppt will add over US$1.5bn to 15 the next 2 years, if they execute on their path to profitability. facilities and importantly resilient customer relationships. As auto
products. Dabur is the biggest beneficiary of consumers’ growing
Pledged (as % of promoter share) 0.0 Pledged (as % of promoter share) 0.0 Bharti’s EV. Pledged (as % of promoter share) 0.0 volumes for 2Ws, PVs and tractors recover, TI is well placed to
preference for natural products. Food tech market set to witness the ‘J-curve’: We believe the
FII 17.6 FII 17.6 10 7.8 FII 18.2 benefit as the supplier to majority of the auto makers in India.
High likelihood of price hike in 12-18 months: JIO has driven food tech market could achieve ~US$14bn GMV in five years, as a DII 20.6
DII 7.4 DII 21.7
A slew of new launches: Dabur has, in CY20, not only launched down industry pricing to very fine levels for 4 years, but post the 4.4 combination of changing delivery culture and improved market Non-auto segments also seeing healthy traction: TI’s intent to
5
Price performance (%) ~25 new products in existing categories such as healthcare, but also Price performance (%) imminent JIO-Google smartphone launch, will likely favour a price 2.0 2.2 structure accelerates the delivery market. We expect reduced Price performance (%) lower exposure to auto cyclicality is playing out, as rise in exports’
0.7 1.50.4 1.20.3 0.5
1M 3M 1Y introduced ~20 products in new categories such as fruit drinks, 1M 3M 1Y hike, given very low ARPU levels currently, and the need for RIL’s 0.2 promotions and efficient logistics to help Zomato expand presence in 1M 3M 1Y share (15% in FY20) gains pace, with focus on product development
0
Dabur India 0.0 1.8 11.1 pickles, milkshakes and surface cleaners. We believe Dabur can Bharti Airtel 6.3 7.5 17.1 US$45bn+ investment in JIO to earn decent returns. Telecom’s FY19 FY20 FY21ii FY22ii FY26ii FY30ii tier 2/3/4 cities, which would drive penetration and order frequency. Tube (6.4) 36.4 57.8 for global auto & industrial customers. The outlook is strong for rail
enter HFD and skincare too. Size of recently launched, and Absolute (US$) 7.6 7.6 13.3 wallet share could rise significantly after falling to less than half its Investments section supplies for coach building, despite near-term hiccups. The
Absolute (US$) 1.2 2.2 7.8
categories Dabur can potentially enter combined are 74% of Dabur’s level 10 years ago. Bharti, thanks to its network investments and Set to be EBITDA-positive in FY22ii: We believe Zomato is firmly large-diameter tubes segment, driven by import substitution, should
Rel. to Sensex (6.7) (18.5) (2.3) Rel. to Sensex (0.4) (12.8) 3.7 Ebitda margin trajectory Absolute (US$) (5.9) 39.6 52.7
existing aggregate category size. New launches added 3-4% to strong execution, is well propped to benefit from this, resulting in on the path to profitability, with double digit contribution margins see healthy growth as demand revives in FY22-23.
CAGR (%) 3 yrs 5 yrs CAGR (%) 3 yrs 5 yrs Rel.to BSE (6.7) 23.8 53.6
Dabur’s 2QFY21 sales; NPD contribution would continue at 2-3% for 21%/29% mobile revenue/Ebitda Cagr over FY21-23ii. In the Ebitda (Rs bn) Ebitda margin (%) per order driving EBITDA breakeven in FY22ii. We forecast 7x growth
EPS 6.1 7.4 EPS NA NA Midcap
the next few years. Dabur will be a key beneficiary of the emergence medium term, digital services such as Airtel Payments Bank, Wynk 100 23% 25% 50% in revenues and US$500mn EBITDA by FY26ii, driven by 3.4x growth Opening a new chapter with CG Power acquisition: TI will soon
CAGR (%) 3 yrs 5 yrs
of ecommerce as niche brands are easier to market as well as Stock movement and Airtel Xstream should improve customer retention and enable 80 -7% 1% in monthly customers and 4.4mn orders per day. However, this complete the Rs8bn investment for 58.58% stake in CG Power. While
Stock movement 0% EPS 24.2 (12.5)
distribute digitally. extraction of higher wallet-share. 60
requires flawless execution and low competitive intensity. businesses are distinct, TI plans to leverage its manufacturing and
Vol('000, LHS) Price (Rs., RHS) Vol('000, LHS) Price (Rs., RHS)
-84% -50% Stock movement R&D capabilities and provide the much-needed capital for turning
300,000 800 40 Significant value creation ahead; consolidation not ruled out:
15,000 600
13% EPS Cagr FY20-23: New launches, improved execution and Falling cost of incremental capacity to boost ROCE: The around operations. If this ensues as planned, it will significantly lower
20 -100% We believe Zomato could be valued at US$4.5bn when pegged at Vol('000, LHS) Price (Rs., RHS)
10,000 400 Covid related tailwinds to healthcare will lead to 10% sales Cagr over 200,000
600 industry has bid for spectrum worth Rs3.6trn in the past 10 years, share of auto, and possibly open-up B2C segments around motors.
400 due to competitive intensity, supply constraints and TRAI’s high 0 global delivery peers’ 2YF sales multiple. On EBITDA multiple, it could 3,000 800
FY20-23. A 180 bps margin expansion will result in EPS Cagr of 13% -150%
5,000 200 100,000 reserve prices. Inadequate spectrum also resulted in high equipment (20) reach US$3bn for FY23ii but US$8.6bn for FY24ii as EBITDA would see 600 Fairly valued at CMP; upsides on stronger delivery: Adjusted for
despite a rise in tax rate. Reverse DCF suggests ~100 bps higher 200 -167% 2,000
intensity. The availability of large quantities of spectrum (especially (40) -200% a ‘J-curve acceleration’, if they execute on their strategy. Our DCF 400 value of CG Power, the stock trades at 26x FY22 PER which we believe
0 0 FCFF Cagr FY23-40 vs HUL which is possible due to presence in 0 0
FY21ii
FY22ii
FY26ii
FY30ii
FY19
FY20
3.6GHz) and fewer bidders in future auctions should aid economical analysis suggests US$7bn valuations with a bear case valuation of 1,000 is fair. Faster than expected recovery in core businesses and quick
underpenetrated categories and entry into new business segments. 200
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capacity addition and boost Bharti’s ROCE significantly. Given 18% US$4.5bn. We believe a Didi Chuxing-like merger of Zomato and turnaround of CG Power will drive upsides and rerating.
0 0
Financial summary (Rs m) Ebitda cagr till FY23, at 8.5x FY22 Ebitda, the stock is attractive. Swiggy is also possible in future. Risk: Entry of new players.
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Financial summary (Rs m)
Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii Financial summary (Rs bn) Financial summary (Rs m) Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii
Revenues (Rs m) 84,192 86,039 91,797 103,553 114,998 Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii FY26ii Revenues (Rs m) 57,748 47,504 34,848 45,846 53,193
Ebitda margins (%) 20.7 20.8 22.2 22.5 22.6 Revenues (Rs bn) 808 879 1,032 1,163 1,347 Revenue (Rs m) 13,126 26,047 23,687 39,954 61,908 161,357 Ebitda margins (%) 9.4 12.2 11.7 13.3 13.9
Pre-exceptional PAT (Rs m) 15,055 15,288 17,191 19,288 22,142 Ebitda margins (%) 31.9 41.9 45.4 47.0 48.4 Growth (%) 181 98 (9) 69 55 32 Pre-exceptional PAT (Rs m) 2,478 3,352 1,896 3,350 4,271
Reported PAT (Rs m) 14,423 14,450 17,191 19,288 22,142 Pre-exceptional PAT (Rs bn) 4 (98) (159) 48 109 Ebitda (Rs m) (21,975) (21,975) (1,639) 439 4,734 37,850
Percy Panthaki Reported PAT (Rs m) 2,508 3,133 1,746 3,350 4,271
Pre-exceptional EPS (Rs) 8.5 8.6 9.7 10.9 12.5 Reported PAT (Rs bn) 4 (322) (159) 48 109 Ebitda margin (%) (167) (84) (7) 1 8 23
percy.panthaki@iiflcap.com Pre-exceptional EPS (Rs) 13.2 17.8 10.1 17.8 22.7
Pre-exceptional EPS (Rs) 1.0 (17.9) (29.1) 8.8 20.0 Food delivery GMV (USD m) 718 1,496 1,244 2,038 3,060 7,777
91 22 4646 4662 Growth (%) 9.9 1.6 12.4 12.2 14.8 Growth (%) 55.9 35.1 (43.5) 76.7 27.5
Growth (%) (62.7) NA NA NA 127.2 Growth (%) NA 108 (17) 64 50 32 Anupam Gupta
IIFL vs consensus (%) 1.7 (0.3) 1.0 PER (x) 45.9 34.0 60.1 34.0 26.7
Sameer Gupta G V Giri Rishi Jhunjhunwala Food delivery revenue (USD m) 155 323 274 469 734 1,944 anupam.gupta@iiflcap.com
PER (x) 60.2 59.3 52.7 47.0 40.9 rishi.jhunjhunwala@iiflcap.com ROE (%) 18.0 20.9 10.7 17.2 19.0
sameer.gupta@iiflcap.com gvgiri@iiflcap.com PER (x) 502.8 NM NM 58.6 25.8 Growth (%) 308 109 (15) 71 57 32 91 22 4646 4641
ROE (%) 26.6 25.0 24.0 23.2 22.9 ROE (%) 0.5 NA NA 5.9 13.3 91 22 4646 4686 Net debt/equity (x) 0.3 0.1 0.1 (0.1) (0.2)
91 22 4646 4672 91 22 4646 4676 Dining out revenue (USD m) 49 56 28 38 49 91
Net debt/equity (x) 0.1 (0.1) (0.2) (0.3) (0.3) Net debt/equity (x) 1.3 1.2 1.7 1.9 1.8 Urvil Bhatt, CFA EV/Ebitda (x) 21.9 20.1 28.5 18.6 14.9
Ameya Karambelkar Growth (%) 63 14 (51) 39 27 20
Kijamerang Pongener EV/Ebitda (x) 52.1 50.0 43.7 37.8 33.5 Balaji Subramanian EV/Ebitda (x) 13.8 12.0 9.8 8.5 7.2 urvil.bhatt@iiflcap.com Price/book (x) 7.7 6.6 6.2 5.5 4.7
ameya.karambelkar@iiflcap.com B2B supplies revenue (USD m) 2 15 15 26 42 116
kijamerang@iiflcap.com Price/book (x) 16.0 13.7 11.7 10.1 8.7 balaji.subramanian@iiflcap.com Price/book (x) 2.4 2.8 3.4 3.5 3.3 91 22 4646 4648 OCF/Ebitda (x) 0.8 1.0 0.8 1.0 0.8
91 22 464 6474 91 22 4646 4644 91 22 4646 4661 Growth (%) NM 635 - 75 65 30
OCF/Ebitda (x) 0.8 0.8 0.8 0.7 0.7 OCF/Ebitda (x) 0.8 0.5 0.9 1.0 0.9 www.iiflcap.com Source: Company, IIFL Research. Price as at close of business on 30 September 2020.
www.iiflcap.com Source: Company, IIFL Research USD/INR exchange rate of 75 used FY20 onwards
www.iiflcap.com Source: Company, IIFL Research. Price as at close of business on 17 December 2020. www.iiflcap.com Source: Company, IIFL Research. Price as at close of business on 17 December 2020.
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Manappuram Finance Coforge Ltd BUY Mindspace REIT

BUY BUY BUY
CMP Rs157 Rightly positioned in current times CMP Rs2223 Industry leading growth engine fuelled by digital! CMP Rs302 Dividend play on high quality portfolio
Target 12m Rs200 (27%) Target 12m Rs2550 (15%) We initiate coverage on Coforge (COFO) with a BUY rating Target 12mth Rs330 (9%)
We initiate coverage on Manappuram Finance (MGFL) with a
Market cap (US$ m) 1,884 and 12-mth target price of Rs2,550, implying 15% potential Market cap (US$ m) 2,437 Mindspace REIT’s (M-REIT) completed and diversified
Market cap (US$ m) 1,800 BUY rating and value the stock at 2x FY22ii BVPS or
upside. COFO’s specialisation in emerging tech, including portfolio of 23m sqft with ~92% committed occupancy offers
Rs200/share (27% upside). MGFL is well-positioned versus Enterprise value (US$ m) 1,760 Enterprise value (US$ m) 3,410
digital integration, in verticals such as insurance, BFS and strong visibility on distribution (~6.8% for FY22ii) along with
Bloomberg MGFL IN peers, given stronger capitalisation, healthy internal capital Bloomberg COFORGE IN Bloomberg MINDSPCE IN
transportation has ensured it remains one of the fastest resilient >95% rental collections through the past few
generation, access to liquidity and a large gold loan portfolio Sector Real Estate
Sector Banking & Fin Sector IT growing mid-caps post management turnaround. It has a months, despite Covid-19. While new-leasing & rental growth
with low LGDs and strong PPoP RoA to absorb potentially-
track record of diversified but strong client-mining, 14 September 2020 is expected to remain muted in the near term, we see long-
high credit costs from smaller businesses. This would drive
01 October 2020 23 September 2020 highlighted by high revenue per client. We believe COFO is set term drivers for office-space demand in India as robust, and
quicker recovery in growth & profitability in the current
scenario. We estimate MGFL to deliver 5.3-5.5% RoA and to deliver 10%/18% USD revenue/EPS Cagr over FY20-23ii, 52Wk High/Low (Rs) 317/299 expect M-REIT to deliver a steady double-digit total return,
52Wk High/Low (Rs) 195/74 52Wk High/Low (Rs) 2272/735 Shares o/s (m) 593 over time. M-REIT distribution is tax efficient; further, its
Shares o/s (m) 845 ~25% RoE in the medium term. The stock is trading at 1.5x Shares o/s (m) 61 driven by: 1) execution of strong deal-wins; 2) uptick in
FY22ii BVPS, (at 41% discount to MUTHOOT) and there is growth in top-20 accounts; and 3) improving margins. The Daily volume (US$ m) 0 balance sheet is healthy enough to tap into growth
Daily volume (US$ m) 22 Daily volume (US$ m) 17 Dividend yield FY22ii (%) 6.8 opportunities, with consolidation likely to pick up post the
Dividend yield FY22ii (%) 3.2 room for the stock to re-rate from current multiples. stock is trading at 21.6x on FY22ii P/E, at 4%/14% premium
Dividend yield FY21ii (%) 1.4 Free float (%) 36.8 pandemic. We initiate coverage on M-REIT with a BUY rating.
Free float (%) 65.0 to large/mid-cap peers. However, given the strong guidance,
Several levers to aid medium-term growth: MGFL’s consistent Free float (%) 29.7
robust order-book visibility, differentiated positioning in Shareholding pattern (%)
Shareholding pattern (%) and high capitalisation across businesses (consolidated Tier 1 ratio at Shareholding pattern (%) specific verticals and sector-leading growth profile, we Superior portfolio; offers strong visibility on dividend: M-REIT
23.1%, as of FY20), strong funding position and positive ALM gap, a Sponsors 63.2
Promoters 35.1 Promoter 70.3 believe the stock will command premium valuations and offer Pledged (as a % of promoter share) has a 23m sqft of Grade-A office portfolio across the healthy office
macroeconomic environment that favours growth in gold loans and 50.0
Pledged (as % of promoter share) 0.0 Pledged (as % of promoter share) 0.0 upside through earnings upgrades and potential re-rating. markets of Hyderabad, Mumbai region, Pune and Chennai, and has
its multi-product approach which hedges the dependence on gold FII 18.2
FII 38.4 FII 14.7 brownfield ‘on-campus’ development potential of 6.5m sqft. The
loans are multi-pronged AUM growth drivers for the medium-to-long Focus on emerging technologies coupled with large deals: DII 0.9
DII 9.8 DII 5.7 COFO’s focus on client mining and sub-verticals such as insurance, portfolio is highly stable, and has a diversified & well-positioned
term. These factors, supported by focus on customer acquisition and
asset management and transportation is a competitive advantage. In Price performance (%) tenant base, 85% of which comprises MNCs; also, ~44% is from
Price performance (%) penetration, would drive 18% Cagr in AUM over FY20-23ii. Price performance (%)
these sub-verticals, it has scale equivalent to larger peers. Focus on 1M 3M 1Y technology and ~22% from financial services.
1M 3M 1Y 1M 3M 1Y
Resilient business-wise profitability to drive EPS: The gold loan winning large deals, underpinned by its digital offerings, has resulted Mindspace REIT 0.6 0.0 0.0
Manappuram 6.2 3.8 11.3 Coforge 12.0 62.4 57.7
Finance (GL) and Microfinance (MFI) businesses have high through-the-cycle in strong order intake and near term executable orders. Aided by Absolute (US$) 2.5 0.0 0.0 Healthy balance sheet, efficient distribution mechanism: We
RoA of ~5% and 3.2% and comprise 90% of MGFL’s AUM. The high Absolute (US$) 14.0 67.0 55.0 these, we forecast 10% USD revenue Cagr over FY20-23ii. Rel.to BSE Midcap (2.5) 0.0 0.0
Absolute (US$) (0.2) 6.3 8.0 expect Ebitda Cagr of 18% over FY21-23ii, primarily driven by
proportion of fixed-rate, high-yielding businesses and consistent Rel.to BSE 16.8 55.2 59.8
Rel.to BSE Midcap 5.9 (8.8) 7.0 Solid execution should drive margin expansion: Over the past CAGR (%) 3 yrs 5 yrs contractual escalations, 2.8m sqft of completions and higher
improvement in cost of funds will aid NIMs. Operating leverage is Midcap
CAGR (%) 3 yrs 5 yrs three years, COFO has continuously invested in building digital EPS occupancy; surprises on re-leasing/renewals can provide further
playing out across businesses, while the low credit costs in GLs will CAGR (%) 3 yrs 5 yrs
EPS 24.6 40.0 capabilities. While it remains firmly focused on driving growth, such upsides. M-REIT will announce distributions, largely in the form of
allow cross-subsidisation of higher losses in other businesses. The EPS 17.6 30.7 Stock movement dividends (>90% for FY22), which are fully tax-exempt. Further, its
strong RoA in GLs, and a relatively quick recovery in MFI, would aid investments would start yielding better margins. Healthy revenue
Stock movement Stock movement growth, solid execution and increasing mix of high-margin digital
Vol('000, LHS) Price (Rs., RHS) debt-to-EV is ~15% for FY21, providing room for acquiring ROFO
Vol('000, LHS) Price (Rs., RHS)
overall profitability and drive 17% EPS Cagr over FY20-23ii. 40,000 320 assets/market acquisitions, over time.
Vol('000, LHS) Price (Rs., RHS) revenue should drive ~190bps margin expansion over FY20-23ii.
100,000 200 30,000 300
Earnings recovery to drive valuations; initiate with BUY: We 6,000 2,500 Premium valuations to sustain: Our 12-mth TP of Rs2,550 is
80,000 20,000 280
150 estimate MGFL’s earnings recovery to be sharper than peers’, due to i) 2,000
based on 22x P/E on 2YF EPS. Led by consistent top-quartile growth, Total-return play in LT; initiate with BUY: While 1QFY21 new
60,000 4,000
40,000
100 growth in GLs and resurgence in MFI, ii) healthy NIM led by stable 1,500
COFO has traded at ~19% premium to mid-cap peers over the past
10,000 260
leasing has expectedly fallen by 61% YoY; we expect the sub-
20,000 50 yields and declining funding costs, iii) strong PPoP RoA of GL/MFI, and 2,000
1,000
two years. We believe the stock will continue to command premium
0 240 US$1/sqft rentals to keep attracting demand from the Tech
Aug-20
0 0 iv) little disruption from vehicle finance/housing finance due to their 500
valuations, given its strong execution capabilities. Key risks: delay in sector/GCCs in the long run. Our DCF-based TP of Rs330 implies
low shares in AUM. Given strong fundamentals, the stock can rerate 0 0
~9% upside from CMP; key risks to distribution include prolonged
Mar-19
Mar-20
May-19
May-20
Jan-19
Jan-20
Nov-18
Jul-19
Nov-19
Jul-20
Sep-18
Sep-19
Sep-20
deal ramp-ups; below-average growth in top clients.

Nov-18
Mar-19
Nov-19
Mar-20
Sep-18
Jan-19
May-19
Jul-19
Sep-19
Jan-20
Jul-20
Sep-20
May-20
to 2x FY22ii BVPS (currently, 1.5x FY22ii BVPS), in our view. impact of covid-19 entailing higher income support.
Financial summary (Rs bn) Financial summary (Rs m) Area under lease and rentals
Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii (m sqft) Rented area - LHS (Rs/s Financial summary (Rs m)
Pre prov. operating inc. (Rs bn) 15.1 22.4 25.7 29.7 36.0 Revenues (Rs m) 36,762 41,839 46,244 53,264 60,548 30 Rental 70 Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii
Pre-exceptional PAT (Rs bn) 9.4 14.7 15.5 19.2 23.6 Ebitda margins (%) 17.6 17.2 17.6 18.9 18.9 25 60 Revenues (Rs m) 14,316 17,660 17,745 21,660 24,144
Pre-exceptional PAT (Rs m) 4,089 4,513 5,005 6,269 7,264 50 Ebitda (Rs m) 10,133 11,116 12,540 15,590 17,538
20
Reported PAT (Rs bn) 9.4 14.7 15.5 19.2 23.6 40
Pre-exceptional EPS (Rs) 11.2 17.4 18.3 22.7 27.9
Reported PAT (Rs m) 4,033 4,442 4,825 6,269 7,264 15 Ebitda margins (%) 71% 63% 71% 72% 73%
30
Pre-exceptional EPS (Rs) 65.6 72.1 81.5 102.9 119.3 10 Pre-exceptional PAT (Rs m) 4,672 4,687 5,173 7,034 7,968
Growth (%) 39.2 55.7 5.6 23.6 22.9 20
Growth (%) 44.8 9.9 13.0 26.3 15.9 5 Reported PAT (Rs m) 4,789 4,747 5,173 7,034 7,968
IIFL vs consensus (%) 4.7 7.0 NA 10
Abhishek Murarka IIFL vs consensus (%) 6.0 8.7 1.6 0 0 EPU (Rs) 8.1 8.0 8.7 11.9 13.4
PER (x) 14.1 9.0 8.6 6.9 5.6 Rishi Jhunjhunwala
abhishek.murarka@iiflcap.com PER (x) 33.9 30.8 27.3 21.6 18.6 FY21 FY22 FY23 Growth (%) -1% 9% 36% 13%
Book value (Rs) 54 68 84 102 125 rishi.jhunjhunwala@iiflcap.com
91 22 4646 4645 ROE (%) 21.3 20.2 21.1 24.7 24.7
PB (x) 2.9 2.3 1.9 1.5 1.3 91 22 4646 4686 Source: Company IIFL Research
Net debt/equity (x) (0.4) (0.4) (0.4) (0.5) (0.6) NDCF (Rs m) 5,707 12,210 12,993
Arash Arethna CAR (%) 23.7 23.4 25.5 26.2 26.7
arash.arethna@iiflcap.com Ameya Karambelkar EV/Ebitda (x) 19.8 18.0 15.5 12.0 10.2 Mohit Agrawal DPU (Rs) 9.6 20.6 21.9
ROA (%) 5.0 5.9 5.0 5.3 5.6
91 22 4646 4655 ameya.karambelkar@iiflcap.com Price/book (x) 6.6 5.8 5.8 4.9 4.2 mohit.agrawal@iiflcap.com DPU growth (%) NA 6.4%
ROE (%) 22.5 28.5 24.2 24.4 24.5
91 22 4646 4661 OCF/Ebitda (x) 0.4 0.7 0.9 0.8 0.7 91 22 4646 4675 DPU Yield (%) 6.8% 7.3%
www.iiflcap.com Source: Company, IIFL Research. Price as at close of business on 30 September 2020.
www.iiflcap.com Source: Company, IIFL Research. Price as at close of business on 23 September 2020. www.iiflcap.com Source: Company, IIFL Research. Price as at close of business on 14 September 2020.
1
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IIFL - India IIFL - UK IIFL - USA

IIFL Securities Limited IIFL Wealth (UK) Limited IIFL Inc.
9th Floor, IIFL Centre, 41 Lothbury 1120 Avenue of the Americas
Kamala City, Senapati Bapat Marg, London EC2R 7HG, Suite 1505,
Lower Parel (W), United Kingdom New York,
Mumbai - 400013 Tel +44 (0) 20 707 87208 NY 10036
Tel +91-22-4646-4600 Tel +1-212-221-6800
Fax +91-22-4646-4700 Fax +1-646-417-5800

IIFL ICICI Sec Initiation 87521

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IIFL ICICI Sec Initiation 87521

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ICICI Securities

CMP Rs444 Future growth drivers in place

business model will deliver more stable financial metrics (revenues,

Future growth drivers in place ................................ …….1

Macro drivers to aid structural growth

Figure 1: Household savings growth should continue, going forward

Figure 2: The share of household savings in financial assets has increased

45.0 44.6 52.3 49.6 51.3 47.4

Figure 4: Steady increase in MF folios and demat accounts as well

Higher mobile and internet penetration to aid growth: Internet

Figure 5: Higher smart-phone penetration, improved connectivity and cheaper

NSE F&O - Internet Statistics

Figure 7: Mobile-based trading on an upward trajectory as well

Equity market turnover on the upswing: Higher investor interest

Source: Bloomberg, IIFL Research Source: Bloomberg, IIFL Research

Large brokers to gain share in the long term

Figure 11: Overview of the Indian broking industry

Source: Company, IIFL Research

Figure 12: SWOT analysis for full-service brokers

Domestic equity broking industry expected to grow at 11-

Strong growth in NSE active clients likely to continue: Over

Source: Company, IIFL Research Source: Company, IIFL Research

Larger players are gaining market share: The industry has

Bank-backed brokers have a different client focus: While

Secondly, we believe that the target customer base is also different

Total 5.95 8.29 8.78 10.80 12.20 14.22 28.3

Figure 20: Comparison of services offered by different brokers

Figure 21: Brokerage rates for major players across products

Long-term profitability of discount brokers yet to be

Figure 23: Bank-backed brokers have higher profitability

Expanded sourcing to drive revenue growth

Figure 24: ISEC – Estimated account sourcing mix in 2QFY21

Source: Company, IIFL Research

Business-partners network scaling-up rapidly: ISEC is focusing

Branches and digital sourcing expanding as well: Despite ISEC

Open architecture has increased access to the market; other

Product enhancement to fulfill all financial needs: During FY20,

Customer acquisition for ISEC to pick-up going forward:

Figure 27: Industry trend in NSE active clients

Source: Company, IIFL Research Source: Company, IIFL Research

Increase in cross-sell to existing clients: ISEC has been

Figure 31: ISEC – Number of clients with 2 or more products

Figure 32: ISEC – Number of clients with 2 or more products as of 2QFY21

Source: Company, IIFL Research

Multiple revenue drivers lower volatility

Source: Company, IIFL Research Source: Company, IIFL Research

Brokerage revenue impacted by yield pressure: Over FY17-20,

Figure 35: ISEC – Trend in brokerage revenue

Figure 36: ISEC – Trend in blended broking yields

Source: Company, IIFL Research

Figure 37: Estimation of yields in the equity and derivative segments

ISEC Broking Revenue (Rs mn)

ISEC Yield (bps)

Lower dependence on broking revenue versus peers: ISEC has

exist in certain streams, overall, there are enough structural

Activation rate for ISEC is picking up, aided by newer

Source: Company, IIFL Research

Revised ICICI Bank (ICICIBC) tie-up is mutually beneficial:

Prime plan aiding higher activation rate and diversification of

Figure 40: ISEC – Details of Prime plans (earlier)

Figure 41: ISEC – Details of Prime plans (revised in 2QFY21)

The Prepaid plan was a pre-existing offering, whereby customers can

Figure 43: ISEC – Details of Prepaid plans (earlier)

Figure 44: ISEC – Details of Prepaid plans (revised in 2QFY21)