Why ICICI Securities is this week's stock pick

With another set of robust numbers for the last quarter, ICICI Securities has reported strong results for 2020-21. Its net profit for the last quarter jumped by 24% q-o-q and 110% y-o-y and this has helped ICICI Sec to double its net profit for the year to Rs 1,067.55 crore from Rs 536.71 crore. Analysts are getting bullish on this counter now because the fourth quarter numbers were also well above the street expectations. Its fourth quarter and annual net profits were above the consensus estimates by 30% and 10% respectively.All stockbrokers are benefitting now from the increased trading activity by retail customers, especially people from tier 2 and tier 3 cities. Since ICICI Sec is a leading stockbroker with around 10% cash market share and 3% futures market share, it has benefitted more. Its revenue grew by 53% q-o-q and 50% y-o-y. Strong client additions of 3.5 lakh new customers during the fourth quarter and broad basing of its client acquisitions due to digital sourcing plans are other highlights. More than half of its new digital channel customers are from non ICICI Bank channels.Though the strict measures imposed by Sebi to curb speculations have reduced trading activity in the fourth quarter, analysts believe that brokerages will continue to see growth in 2021-22. However, revenue growth in 2021-22 will be moderate due to a high base of 2020-21. ICICI Sec has lost its market share a bit to discount brokers recently and to fight back, it has introduced a ‘neo plan’. Under neo plan, customers are allowed to trade at `20 per order on unlimited options and equity intraday trades. Analysts say the neo plan will help ICICI Sec to counter competition in the coming years.Brokerage business is cyclical and what we are seeing now is a cyclical upturn. Since fixed costs like office, employee expenses, etc. won’t go up due to increased trading activity by clients, net profits of brokerages zoom during high activities and that explains how ICICI Sec was able to double its net profit in 2020-21. Its division that distributes third party products like mutual funds, insurance, etc is also doing well and could report a 22% y-o-y revenue growth during the fourth quarter. ICICI Sec is also benefiting from the increased investor interest in mutual funds. Its SIP count increased 12% y-o-y in the fourth quarter. 82230217 Selection methodology: We pick up the stock that has shown the maximum increase in “consensus analyst rating” during the last one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (ie 5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search will be restricted to stocks with at least 10 analysts covering it. You can see similar consensus analyst rating changes during the last one week in ETW 50 table.(Graphics by Sadhana Saxena/ET Prime)

from Economic Times https://ift.tt/3gNQrmO