ISECNSEJuly 28, 2022

ICICI Securities Limited

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78turns

12analyst exchanges

6executives

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Management on call

Vijay Chandok

Managing Director and Chief Executive Officer, Mr. Ajay Saraf –

Harvinder Jaspal

Chief Financial Officer, Mr.

Kedar Deshpande

Head,

Anupam Guha

Head, Private Wealth Management, Mr. Subhash Kelkar – Chief

Ketan Karkhanis

Head Digital

Prasannan Keshavan

Head, Operations, and Mr. Nilotpal Gupta – Head, Data

Key numbers — 40 extracted

rs,

nd it quite sharply intensified in Q1 FY23. And this is visible from trends on multiple parameters, and I will just take you through the parameters where this moderation is clearly visible. First

25%

has been losing momentum and on a sequential basis the new Demat accounts actually declined by 25%. The second parameter is the NSE Active for the industry, this grew by about 5.5% sequentially an

5.5%

ly declined by 25%. The second parameter is the NSE Active for the industry, this grew by about 5.5% sequentially and that this growth rate is the slowest that we have seen since 2019 December. Curr

20 lakh

have seen since 2019 December. Currently this number has now stacked up for this quarter to about 20 lakhs NSE Active. And what is interesting is that this momentum is showing a declining trend on a mo

5 lakh

g is that this momentum is showing a declining trend on a monthly basis with industry adding only 5 lakh customers on NSE Active in May which came down further to little less than 3 lakh customers in

3 lakh

y adding only 5 lakh customers on NSE Active in May which came down further to little less than 3 lakh customers in the month of June. The third parameter I want to talk about is the cash volumes. Cas

15%

ut is the cash volumes. Cash volumes for Q1 further reduced with retail equity ADTOs declining by 15% sequentially. Within this quarter if you look at the June retail cash ADTOs it actually declined

22%

equentially. Within this quarter if you look at the June retail cash ADTOs it actually declined 22% vis-à-vis May and 35% vis-à-vis March, clearly indicating that there is a weakening trend as we e

35%

is quarter if you look at the June retail cash ADTOs it actually declined 22% vis-à-vis May and 35% vis-à-vis March, clearly indicating that there is a weakening trend as we enter into Q2. Coming

11%

st quarter compared to Q3 to 25% and a further moderated sequentially in the current quarter to 11% compared to Q4 of last year. Coming to the overall ECM activity which is there in the industry ag

16%

y quite weak. Coming to mutual funds, the gross flows in equity mutual fund declined by 15% and 16% on equity and debt respectively and the flows into SIP however continue to show an increasing tre

y and the flows into SIP however continue to show an increasing trend and it increased by about 3% sequentially, however what was noteworthy is that the SIP count addition declined sequentially by

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Guidance — 20 items

Vijay Chandok

opening

“Under the circumstances of a difficult quarter, I would say and reemphasize that we are completely committed to our medium-term strategy that I have shared with you in the past, however our immediate focus as a company has remained in four important areas.”

Digant Haria

“Just lastly, just a suggestion that since you alluded that in these difficult markets or markets which are not very buoyant, market share will be a very big focus for us.”

Vijay Chandok

“I think those steps will be welcomed by the investor community and we as well and we will abide by whatever new framework.”

Vijay Chandok

“I think, we will be down by only about 12% in terms of overall prime numbers in comparison to Q4 but when we look at any other quarter before that, I think the Q1 will still be far better than what we have done previously.”

Nilesh Shetty

“Is that primary on the balance sheet or you will be expensing through the P&L and how will the expense meet.”

Nilesh Shetty

“But currently, we expect a more moderated spend on technology.”

Nilesh Shetty

“It will be a similar mix of CAPEX and OPEX, so part on balance sheet and part on opex.”

Vijay Chandok

“Yes, but just a point to be taken away is that you know the kind of aggressive guidance we had spoken last time, we have started looking at it in a more judicious way.”

Nilesh Shetty

“Given the future direction, a medium-term direction, we will shortly be taking an approval of financing that from Rs.11,000 to about Rs.15,000 crores to keep an enough headroom over a medium-term.”

Aejas Lakhani

“Chandok if you look at the exit MFT book that is tapered down to 5,200, so how should one look at that for the next quarter?”

Risks & concerns — 15 flagged

If you look at the residual primary market activity, it was actually quite weak.

— Vijay Chandok

If I were to explain the decline on YoY basis it is on account of lower revenue in the institutional businesses, all other businesses have actually grown on a YoY basis and the higher cost base was the second reason why this is actually declined.

— Vijay Chandok

When you look at on a sequential basis the decline can be attributed to weakness across both primary and secondary market activities and also to an extent on account of seasonality in some parts of the distribution business.

— Vijay Chandok

Under the circumstances of a difficult quarter, I would say and reemphasize that we are completely committed to our medium-term strategy that I have shared with you in the past, however our immediate focus as a company has remained in four important areas.

— Vijay Chandok

We continued to introduce new tools, new plans, new propositions to strengthen our offerings across all businesses and our market share focus in difficult markets is going to be a very important deliverable from our side and we will remain committed to that.

— Vijay Chandok

Second, coming to our focus area in the current difficult situations is diversification of revenues.

— Vijay Chandok

This is because we reduced discretionary cost in the context of a weak market conditions.

— Vijay Chandok

While the decline itself is marginal, I think it is important to note that it is a clear commitment and the direction that we have taken of containing what we called discretionary cost and focusing only on growth-oriented cost elements, and we will continue to look at costs in a similar manner as we enter the remaining part of this fiscal year.

— Vijay Chandok

On the issuers and advisory services business, markets were weak, so we used this time to build a strong pipeline and today we have a pipeline of about 82,500 crores across 42 deals and there are many more deals that we are engaged in and we feel quite optimistic that as soon as market sentiment improves, many of these deals will get executed and we are keeping several of them in a ready to launch state.

— Vijay Chandok

So, as we move forward, I think it would be fair to say that the near-term outlook remains uncertain.

— Vijay Chandok

And specifically on the wealth part, the whole distribution part, not just wealth but the whole distribution part, do you see any pricing pressure coming in the market or across products like MF, insurance, and wealth management, is there no pressure on pricing?

— Digant Haria

I think clearly one cannot run away and wish away from the fact that there is lot of competition, entry barriers are relatively low, so pricing pressure is always knocking on our doors whichever product that we offer.

— Vijay Chandok

Our approach to pricing pressure is trying to innovate, add value and try and maintain pricing.

— Vijay Chandok

Just lastly, just a suggestion that since you alluded that in these difficult markets or markets which are not very buoyant, market share will be a very big focus for us.

— Digant Haria

So, I think they are clearly coming from a risk on lens so to speak.

— Vijay Chandok

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Q&A — 12 exchanges

My first question is that if we look at the cash ADTO in the last 12 months they have fallen by roughly 30% or 40%. But derivatives ADTO even on a Q-o-Q basis haven’t fallen much. So, maybe someone like me would read that F&O trading is probably the future, how much ever we may like it or not, F&O trading is occupying the center stage of the entire equity markets. So, in that context my first question is on the F&O that six months back, Vijay you said that, in F&O trading we need three things, we first need the pricing right, second is we need the tools and the ecosystem to help the traders an

Vijay Chandok

Thanks Digant. A pleasure to talk to you after a long time. So, you are very right, I think you citied some numbers, 35% broadly was the decrease in the cash ADTO and if you look at derivatives, while on a YoY basis the growth was some more than 2.2x on a YoY basis. I think what is to be noted is that sequentially while it is growing, it is growing at a slower pace. So, yes, all the numbers that you mentioned, I completely I can resonate with what you are saying. Just one point I would comment on this, is that as a company as a firm, our approach is always diversification, not be dependent on

Hi, good evening, everyone. Firstly, when you were continuing on the F&O question which we had from the first participant. While there is so much of traction, the regulator seems to be talking about restricting the activity of retail in terms of in F&O and so we are hearing that lot of data has been sought from brokers by exchanges as well as the regulator. So how do you think that this is panning out and what could be the measures according to you that could be brought to restrict trading activity of kind by retail participants of any and the second question is on the prime customers where we

Vijay Chandok

Okay. So yes, you are very right, Prayesh when you said that regulator has been asking a lot of questions in fact all of us in the industry including, I am sure your company as well would have been probably called in for these kind of conversations. I think, when you get behind the skin of what exactly the regulator is looking at, I think they are concerned about. A. The growing volumes, it is pretty high. B. The fact that a lot of younger less experience people who have come into the markets are participating in F&O market and obviously from a sustainability of and stability of the market vie

Yes, hi thanks for taking my question. I just want to understand, see few quarters there has been burst of new clients’ additions. I am assuming, there has been substantial marketing spent to acquire those clients. I do not know, if there is a life cycle costing number, when do these clients become sort of net positive for you. I am assuming there is an EBITDA drag because of large marketing expense that have been undertaking but at some point, these clients which are dragging margins start adding to profitability. So is there some sense, you can throw that. Harvinder Jaspal: Hi, Harvinder her

Vijay Chandok

I just add one point, we have been very careful not overextending ourselves on spend. In fact, I think at an overall level the numbers do not really move the overall PBT number by too much. Okay, I think in the last call you suggested you might, I mean there would be substantial spend on the technology side. I think the number was around 60 crores or something. Is that primary on the balance sheet or you will be expensing through the P&L and how will the expense meet. Harvinder Jaspal: Yes, so first of all let me clarify the numbers, so we have had a capex spend of about Rs.70 odd crores in FY

Some of my questions have been answered, but the ones that are pending are one is team could you speak about the MTF and ESOP book a bit Mr. Chandok if you look at the exit MFT book that is tapered down to 5,200, so how should one look at that for the next quarter?

Vijay Chandok

MTF and ESOP to our mind is something that is an area of focus, but we will not be moving ahead without fitting into our risk framework. Now there is a risk framework with what we do, what type of customers we do with and there is a team which is very carefully administering this on the ground. In this quarter as you correctly pointed out sequentially there is a marginal decline. It is reflective of the fact that there is a weak market and inherently MTF is a product which is more suitable when the outlook of market is constructive and positive. In such a context what are we doing we found tha

So, on the SIP as we mentioned other market share is 3.5% there has been a bit of softness now, but the total number of SIP they continue to hold it is about 1 million in fact slightly inched up from last year. In terms of flows also it has been stable there I think a lot of initiatives like our money app, digital, client engagement with customer, simplified journey these are the some of the things which are helping in that particular business in terms of gaining share. Here also if you look at our SIP AUM there our growth has been slightly ahead of industry however the flows were slightly sof

Vijay Chandok

So, insurance primarily currently the portfolio is life insurance dominant there if you look at it our revenue was about 12.5 crores which was up almost 40% on a YoY basis from 7.5 crores to 12.5 crores. We are also building a line of general insurance products with our partnership through CoverStack and there we have designed andit is in the process of getting fully launched and we have integrated with our partners. We now have about four partners through which we provide general insurance products and we have a two-wheeler, four-wheeler, health insurance these are the products in general ins

So, firstly just wanted to understand whether we were reducing brokerage rates for our prime as well as non-prime customers? Harvinder Jaspal: On the rate per se nothing specific now. We had launched lifetime prime and prepaid plans in March. So, those plans basically offered on a subscription fee a lifetime benefit of the same reduced freight that we were earlier also offering that was the change that we made. On neo also the pricing remains the same. On the non-neo part also the rate in the pricing is currently the same. We have not made any changes.

Piran Engineer

Harvinder how do I reconcile your ADTO trends and your revenue trend like ADTO cash is down 15%, 17%? Harvinder Jaspal: Primarily mix Piran because what has happened in the current quarter is that the delivery ADTO. So, the waterfall in broking yield is that delivery is at the highest level followed by intraday, followed by F&O. So, that is the waterfall. Right now delivery has been weaker in the current quarter and therefore intraday has gone up so it is primarily mix. On a unit rate there is no other pricing intervention that we have done. Can you just some numerical color like retail ADTO i

So, sir firstly could you throw some color on the activation rate of the customers which were acquired in like Q4 FY21, what is the status on those customers, what percentage of those customers are still trading, are still active with us? Harvinder Jaspal:: So, there are varied natures for example the cohort that we have acquired digitally has one kind of a behavior within that also we have elaborated in few earnings call earlier as well that there are few channels which have a much lower continuity rate where the second transaction, third transaction etcetera is lower. We have also seen a low

Sahej Mittal

I mean so if you could just talk about the customers we acquired after the lockdown started around April 20, May 20 are those customers still active, just to get a sense the current customers which we are acquiring are cross subsidizing the customers, the deactivation of those customers which are getting deactivated? Harvinder Jaspal: As I clarified those customers are also active from a particular set of channels and some of the customers may have dropped off so it is a mix. It is not a month wise behavior that April customers have all stopped or May customers have all stopped. There is a par

Sir one question we have started this journey of open architecture almost two years back so how much of our retail revenue is coming outside of ICICI Bank customers? Harvinder Jaspal: On stock the ICICI Bank customers is still the lion share because they are the more vintage customer and the profile is also better. It is relatively much lower from the new open architecture as it started and gain traction about 14 months back if you really look at it and there is some kind of a between time. So, it is not the on an overall basis the contribution will not be very high, but the buildup and the sc

Niddhesh

Secondly we used to disclose that more than 50% of our revenue is coming from other customers acquired more than 5 years back is it still holds true for this quarter? Harvinder Jaspal: So, 60% of our revenue coming from customers which are more than five years that is holding. Although, we are starting to get a decent traction in the recently acquired customers also, but that material is holding.

I will just add one comment here Sanketh that we will be judicious in spent, but I do not want to compromise on growth opportunities. So, we are in the investment mode and we will judiciously in a agile way spent where we need to spent, but what is good to have we will probably defer it.

Sanketh Godha

Our employee cost you want to make it to the top line? I am coming to that so on the same basis when we had our employee cost-to-income ratio of 20% we have very clearly guided that this is not the long-term employee cost trend. We should definitely see an increase on this trend 20% was actually one quarter and we had explained also that overall I mean we should see an expansion over here. We are investing in very identified focus areas, in the area of technology, analytics, marketing, some of these areas we have identified and we are investing in building up talent. On an absolute basis as I

Just on the part where we take the subscription revenues firstly how do we account that from a lifetime fee that you get, how do you account that and what is the kind of float that you would be earning on that, so basically what is the size of that pool? Harvinder Jaspal: Once we have converted them into a lifetime variant there accounting is instantaneous. There are two variants which are in subscription mode the 299 variant and the Rs. 900 variant. These two are still in subscription mode which are annual fee. The annual fee get amortized over four quarter one year and the instantaneous life

Management

Sir, I have couple of questions regarding your private wealth segments. So, you have given the AUM of private wealth so in that regard can you also give the number of customers that how many customers you have in private wealth and then how that customers base has shown over the last few quarters that is first. Second thing is about acquisition that how are you acquiring these customers, is there any separate vertical to acquire these customers apart from normally the way you are acquiring mass affluent customers and third is the customer mix that how many of these customers are from the ICICI

Vijay Chandok

You asked a bunch of questions let me go one by one. Your first question is that how many customers are there in private wealth. First of all, I will take a minute to describe what is private wealth definition by us, any customer individually has got a crore of rupees of AUM with us is what we call as a private customer. If you look at the total number of such customers today, we would have crossed 70,000 customers and during the quarter we added about 1,600 customers to this cohort. The total aggregated AUM from all these customers 70,000 customers would be slightly lower than 2.8 lakh crore

Thanks a lot. Thank you everyone for a patient hearing. Thanks for the support you have been giving us. We will connect with you in the course and if there are any follow up questions, unanswered questions please feel free to reach out we are all there to respond. Once again thanks a lot and good night.

Management

Speaking time

Vijay Chandok

Moderator

Sahej Mittal

Piran Engineer

Digant Haria

Nilesh Shetty

Aejas Lakhani

Prayesh Jain

Harvinder Jaspal

Bhuvnesh Garg

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Opening remarks

Vijay Chandok

Thank you very much. A very good evening to all of you and welcome to ICICI Securities quarter one earnings call for fiscal 2023. So, I am sure that by now you would have all perused through our investor presentation which has been uploaded as was pointed out on our website. I shall start this discussion with highlighting some of the industry performance for the quarter which has just ended and then take you through some of the key areas that we have been focusing on during this quarter. So, the first thing that we have seen was apparent in this quarter was there was a clear moderation in the industry. In a way when we look at this moderating trend it started off sometime in the month of October last year, so Q3 FY22 is when it started. It continued in Q4 FY22 and it quite sharply intensified in Q1 FY23. And this is visible from trends on multiple parameters, and I will just take you through the parameters where this moderation is clearly visible. First in the growth of new Demat accou

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