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IPO Note: ICICI Securities Ltd.

Issue Snapshot

Company Name ICICI Securities Ltd.

Issue Opens March 22, 2018 to March 26, 2018

Price Band Rs. 519 to Rs. 520

Bid Lot 28 Equity Shares and in multiples thereof.

The Offer Public issue of 77,249,508 Equity shares of Face value

Rs. 5 each, (Comprising of Offer for Sale).

Issue Size Rs. 4017.0 Crore

IPO Process 100% Book Building

Face Value Rs. 5.00

Exchanges NSE & BSE

BRLM

DSP Merrill Lynch Limited, Citigroup Global Markets

India Private Limited, CLSA India Private Limited,

Edelweiss Financial Services Limited, IIFL Holdings

Limited and SBI Capital Markets Limited

Registrar Karvy Computershare Private Limited

Industry: Financial Services Date: March 21, 2018

1008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com

Company Highlights

ICICI Securities Ltd. (I-sec) is a leading technology-based securities firm in India that offers a wide range of financial

services including brokerage, financial product distribution and investment banking and focuses on both retail and

institutional clients. It has been the largest equity broker in India since FY14 by brokerage revenue and active

customers in equities on the National Stock Exchange (Source: CRISIL), powered by significant retail brokerage

business, which accounted for 90.5% of the revenue from its brokerage business (excluding income earned on its

funds used in the brokerage business) in FY17. As of December 31, 2017, ICICIdirect had approximately 3.9 million

operational accounts of whom 0.8 million had traded on NSE in the preceding 12 months (Source: NSE). Since

inception, it acquired a total of 4.6 million customers through this platform as of December 31, 2017.

The financial savings environment in India has undergone a fundamental transformation in recent years. Strong

macroeconomic factors such as growing gross domestic product, increasing formalization of economy, lower inflation

and falling interest rates have contributed to the growing shift of household savings towards financial assets.

Consequently, India is witnessing increasing retail and domestic institutional participation in Indian equity markets.

However, activity in capital markets in India remains low compared to global markets as demonstrated by market

capitalization to GDP ratio of 69% for India compared to global average of 99% in 2016 (Source: CRISIL). Being one

of the pioneers in the e-brokerage business in India, along with its strong brand name, large registered customer

base, wide range of products across asset classes, position I-sec to be the natural beneficiary of the growth in

digitization and resultant transformational changes in the Indian savings markets. I-sec also distribute various third-

party products including mutual funds, insurance products, fixed deposits, loans, tax services and pension products.

All its businesses verticals are supported by its nationwide network, consisting of over 200 own branches, over 2,600

branches of ICICI Bank through which its electronic brokerage platform is marketed and over 4,600 sub-brokers,

authorized persons, independent financial associates and independent associates as at December 31,2017.

Issue Break up

Issue Size Allocation Equity Shares*

QIB ex Anchor 30% 22,016,110

Anchor Investor 45% 33,024,165

HNI 15% 11,008,055

RII 10% 7,338,703

Total Public 100% 73,387,033

ICICI Bank Shareholders 3,862,475

Total 77,249,508

Equity Share Pre Issue (Nos. Cr.) 32.2

OFS Share (Nos. Cr.) 7.7

Equity Share Post Issue (Nos. Cr.) 32.2

Market Cap (Rs. Cr.) 16,751.4

Dilution 24.0%

* Based on Higher Price Band @ 520Objects of the Offer

Offer for Sale

The Company will not receive any proceeds of the Offer for Sale by the Selling Shareholder. The objects of the

Offer are to achieve the benefits of listing the Equity Shares of the Company on the Stock Exchanges. The listing

of the Equity Shares will enhance the Company’s brand and provide liquidity to the existing Shareholders.

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21008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com

ViewICICI Securities Ltd backed by parent, ICICI Bank has been the largest equity broker in India since fiscal 2014 by

brokerage revenue and active customers in equities on the National Stock Exchange. The strength of the company

lies in its retail brokerage business, which accounted for 90.5% of the revenue from the brokerage business

(excluding income earned on own funds used in the brokerage business), in FY17. The same has been achieved

through electronic brokerage platform, ICICIdirect which allow customers to link their trading accounts to their

savings and demat accounts, providing them with 3-in-1 accounts in partnership with ICICI Bank. Thus, being the

sole equity securities arm of ICICI Group, it helps ICICI Securities to get access to ICICI Bank branches for the

purposes of customer acquisition as well as to serve as a key partner. As of December 31, 2017, ICICIdirect, had

approximately 3.9 million operational accounts of whom 0.8 million had traded on NSE in the preceding 12 months.

Company’s retail brokerage and distribution businesses are supported by ICICI Securities’ network of over 200 own

branches together with 2,600 branches of ICICI Bank through which company’s electronic brokerage platform is

marketed and also over 4,600 sub-brokers, authorised persons, independent financial associates and independent

associates as at December 31, 2017. Apart from broking, ICICI Securities also offer a wide variety of advisory

services, including financial planning, equity portfolio advisory, access to alternate investments, retirement

planning and estate planning. India is a country of savers with household savings as a proportion of GDP at

approximately 19% in 2016, as compared to 9% in USA, 6% in Brazil and a global average of 9% in 2016. Besides,

the share of financial savings as a proportion of household savings has increased steadily from 31.1% in fiscal

2012 to 41.5% in fiscal 2016 as low real interest rates and stagnation in real estate has led to shifting of household

savings from physical assets to financial assets. The company also has a strong and growing distribution business

where third-party mutual funds, insurance products, fixed deposits, loans and pension products are distributed to

retail customers for commission income. Revenues from the distribution business have increased from Rs 162.14

crore in FY13 to Rs 350 crore in FY17 and were Rs 328 crore in 9MFY18. Revenue from the distribution of third-

party mutual funds accounted for 36.7%, 47.3% and 60.7% of revenue from the distribution business in FY13,

FY17 and 9MFY18, respectively. Thus, the strong resurgence in mutual funds AUM growth bodes well for the

company in terms of higher commission which is achieved leveraging its robust distribution network. The company

also has a growing investment banking business which offers equity capital markets services and other financial

advisory services to corporate clients, the government and financial sponsors. The revenue from investment

banking business has increased from Rs 70 crore in FY13 to Rs 119.5 crore in FY17, at a CAGR of 14.2%, and was Rs

1,13.4 crore in the nine months ended December 31, 2017. For the period from April 1, 2012 to September 30,

2017, ICICI Securities was the leading investment bank in the Indian equity capital markets by number of equity

capital market issuances managed. The brokerage & distribution business grew at a CAGR of 17% between FY13 &

FY17 while investment banking business grew at CAGR of 14% during the same period. As of nine months

December 2017, of the consolidated revenues, brokerage & distribution business contributes 90.1%, Investment

banking contributes 8.4% and Treasury and trading business contributes 1.5%. Total revenues and profit after tax

increased from Rs 705.8 crore and Rs 71.8 crore, respectively, in FY13 to Rs 1,404.2 crore and Rs 338.6 crore in

FY17, respectively, representing a CAGR of 18.8% and 47.4%, respectively. Besides, return on equity has exceeded

30% for each measured period since FY13 and the same stood at 69.2% for FY17. Over the years, profitability has

been increased through decline in cost ratio (ratio of total expenses to total revenue) from 84.6% in FY13 to 62.8%

in FY17. Improvement in economic growth, higher share of financial assets (in household assets), strong market

position and strong management are the key strengths of the company. While the industry is prone to competition,

however, there has been consolidation in favour of larger brokers, thus market share of the top five brokers

increased from 14% of the trading turnover in the NSE cash equities market in FY13 to 19% in the six months

ended September 30, 2017. There is immense opportunity for the industry as activity in capital markets in India

remains low compared to global markets as demonstrated by market capitalisation to GDP ratio of 69% for India

compared to global average of 99% in 2016 and ICICI Securities being one of the torchbearers will certainly gain

going ahead. At the higher price band, the issue is priced at P/E of 31.5x based on annualized 9MFY18 EPS of Rs

16.5 (post issue) and at P/BV of 25.0 based on its NAV of Rs. 20.76 as on December 2017. Looking at the valuation,

the IPO is almost valued at par against its peers.

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31008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com

(In Rs. Cr) FY12 FY13 FY14 FY15 FY16 FY17 9MFY18

Cash flow from Operations Activities 33.0 192.5 221.3 232.2 165.3 (49.9) (26.8)

Cash flow from Investing Activities (12.5) (114.7) 88.9 (16.5) (17.0) (13.6) (115.9)

Cash flow from Financing Activities (62.0) (4.3) (331.5) (271.5) (54.1) 112.7 220.3

Net increase/(decrease) in cash and cash equivalents (41.4) 73.5 (21.4) (55.7) 94.2 49.2 77.6

Cash and cash equivalents at the beginning of the year 71.4 30.0 103.5 82.1 26.4 26.4 120.6

Cash and cash equivalents at the end of the year 30.0 103.5 82.1 26.4 120.6 75.6 198.2

Source: RHP

Comparison with listed industry peers

Financial Statement

Cash Flow Statement

(In Rs. Cr) FY12 FY13 FY14 FY15 FY16 FY17 9MFY18

Share Capital 211.1 161.1 161.1 161.1 161.1 161.1 161.1

Net Worth 261.8 249.4 352.3 398.2 489.6 461.4 675.1

Total Long Term Liabilities 71.4 56.0 68.6 89.5 116.5 103.0 124.3

Short-term borrowings 219.9 317.1 226.5 172.9 395.4 493.0 860.7

Other Current Liabilities 287.2 950.3 715.5 737.0 1,046.0 742.2 1,261.5

Fixed Assets 35.6 36.4 38.5 37.8 37.5 38.1 42.3

Non Current Assets 168.8 189.0 170.8 208.4 277.2 328.3 196.0

Current Assets 635.8 1,347.5 1,153.5 1,151.3 1,732.8 1,433.2 2,683.4

Total Assets 840.2 1,572.9 1,362.9 1,397.5 2,047.4 1,799.6 2,921.7

Revenue from Operations 705.8 812.3 1209.5 1124.6 1404.2 1022.7 1344.7

Revenue Growth (%) 15.1 48.9 (7.0) 24.9 (27.2)

EBITDA 153.5 177.9 497.1 415.9 566.3 426.6 659.3

EBITDA Margin (%) 21.7 21.9 41.1 37.0 40.3 41.7 49.0

Net Profit 71.8 89.2 293.9 238.7 338.6 255.4 399.1

Net Profit Margin (%) 10.2 11.0 24.3 21.2 24.1 25.0 29.7

Earnings Per Share (Rs.) 2.0 2.6 9.1 7.4 10.5 7.9 12.4

Return on Networth (%) 29.5 35.6 99.6 64.7 77.5 60.4 69.3

Net Asset Value per Share (Rs.) 6.4 7.6 10.8 12.1 15.0 14.1 20.8

Source: RHP, Ashika Research

Name of the companyEPS(Rs.)

RONW(%)

P/E(x)

EV/EBITDA(x)

Mcap/ Sales(x)

Market Cap(Rs. Cr.)

ICICI Securities 16.5 60.4 31.5* 30.7* 9.3* 16751*

IIFL Holdings 26.7 21.3 29.0 10.9 4.1 24596.4

Edelweiss Financial Services 8.9 13.7 29.9 11.6 3.1 24277.4

Motilal Oswal Financial Services 33.3 22.6 34.4 17.1 6.6 16635.7

JM Financial 7.1 20.5 18.6 9.1 4.0 11051.6

Geojit Financial Services 2.9 12.2 34.7 17.2 7.6 2401.5

Source: RHP, Ashika ResearchNote: ISec fig. are calculated based on post issue diluted and higher price band. All Fig. are on TTM basis except D/E, RoNW are on FY17.

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41008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com

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There were no significant and material disciplinary actions against ASBL taken by any regulatory authority during last three years.

Disclosure

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Name Designation Email ID Contact No.

Paras Bothra President Equity Research paras@ashikagroup.com +91 22 6611 1704

Krishna Kumar Agarwal Equity Research Analyst krishna.a@ashikagroup.com +91 33 4036 0646

Partha Mazumder Equity Research Analyst partha.m@ashikagroup.com +91 33 4036 0647

Arijit Malakar Equity Research Analyst amalakar@ashikagroup.com +91 33 4036 0644

Tirthankar Das Technical & Derivative Analyst tirthankar.d@ashikagroup.com +91 33 4036 0645

Research Team