Why ICICI Securities Ltd (ICICI-Direct) Stock is Falling? (Q3 2019 Performance Review)

How is the Q3 result of ICICI Securities? Why did the stock price of ICICI Securities fall? How has the business of ICICI Securities changed?

Here, we are going to discuss various aspects of ICICI Securities from its IPO to where it stands today.

IPO of ICICI Securities

The IPO of ICICI Securities came in March 2018. A lot of problems had been encountered at that time. The IPO size was Rs. 4,200 crores which was later brought down to Rs. 3,500 crores. ICICI Mutual Fund was questioned as to why it has allocations in this IPO for which SEBI penalized them.

The start of ICICI Securities itself was a little rough. The IPO was launched at Rs. 520 and was listed at close to Rs. 435. That is it was listed almost 17% down. After the Q3 results the stock has reached Rs. 260. Which means there is a downfall of 50% from their launch price.

Q3 Results

The downward trend in the results of ICICI securities might continue.

Reason Behind the Fall in Results and Declining Stock Price

The problems faced by ICICI Securities can be traced out as follows: –

1. Declining Market Share in Broking Business
2. There is a downfall in its total volume too. In Q2FY18-19, their market share of volume was 8.6% which in this quarter has come down to 8%.
3. Broking Revenue which is the main source of earning has also seen falls. There is a fall of 17% in broking revenue on YoY basis.

The reason behind this is the concept of discount broking which is going on currently. The main participator of discount broking is Zerodha which has made it the biggest broker at the exchange, that too in a very short time. The default broking charges of ICICI Securities were 0.75% per trade, which was a lot. In the start ICICI Securities has a enjoyed a high market share and revenues, but unfortunately it got listed at a very wrong time. The business model adopted by ICICI Securities is not going to sustain for a long time. And when you get in to discount broking, then only traditional broking business cannot run successfully. The business model of Zerodha is completely and very different from the traditional business model.

And when such players enter the market, the traditional business models are bound to fail, which is the major reason behind the declining market share of ICICI Securities. They didn’t take any steps to stay updated with the competition. The company is just being reactive rather than being proactive.

• Mutual Fund (MF) Distribution – This was one of the major revenue generators of ICICI Securities. SEBI has started taking some actions here. SEBI has put a stop to up-fronting. Many big players believe in upfronting. And compared to the other players up-fronting and commissions of ICICI Securities was a little high. There is a 21% drop in the YoY growth in its MF Distribution. Because of this the Q3 results are so bad.

• Investment Banking Deals – In last quarter, the market had seen a fall. Investment Banking includes assistance to companies for IPO’s. No company would have wanted to launch its IPO in those fallen markets. Thus, there too its revenue took hit. ICICI Securities experienced a fall of 38% on YoY basis in investment banking deals

Summary

• There are low hopes for reversal in the falling revenues because of strong competition.
• There is a fall in all the revenue sources of ICICI Securities because of which the current Q3 results are looking so bad.
• Declining market share in broking business and declining revenues in the MF distribution business are the two troublesome factors here.
• The Investment banking business is a little sluggish right now but its not negative. This sluggishness will continue until after the end of the upcoming election event. There will be new IPO’s where investment banking deals will be done. But they will only happen after the election event. That time ICICI Securities will gain advantage as it is a famous player in this business segment.