ISECNSEQ3FY23January 27, 2023

ICICI Securities Limited

13,728words
149turns
11analyst exchanges
10executives
Management on call
Vijay Chandok
MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER, ICICI SECURITIES LIMITED
Ajay Saraf
EXECUTIVE DIRECTOR, ICICI SECURITIES LIMITED, ICICI SECURITIES LIMITED
Harvinder Jaspal
CHIEF FINANCIAL OFFICER, ICICI SECURITIES LIMITED
Vishal Gulechha
HEAD, RETAIL EQUITIES, ICICI SECURITIES LIMITED
Kedar Deshpande
HEAD, RETAIL DISTRIBUTION, PRODUCTS & SERVICES GROUP, ICICI SECURITIES LIMITED
Anupam Guha
HEAD, PRIVATE WEALTH MANAGEMENT, ICICI SECURITIES LIMITED
Subhash Kelkar
CHIEF TECHNOLOGY & DIGITAL OFFICER, ICICI SECURITIES LIMITED
Ketan Karkhanis
HEAD, DIGITAL CLIENT
Nilotpal Gupta
HEAD, DATA SCIENCE UNIT, ICICI SECURITIES LIMITED
Nidhi Kajaria
HEAD, HUMAN RESOURCES, ICICI SECURITIES LIMITED
Key numbers — 40 extracted
18%
rovement in this quarter sequentially was the F&O trading activities where the ADTO grew by about 18%. The second was the systematic investment plans and mutual funds continue to show an increasing
6%
e systematic investment plans and mutual funds continue to show an increasing trend, growing at a 6% clip sequentially. Gross flows into equity mutual funds also increased by about 1% sequentially.
1%
, growing at a 6% clip sequentially. Gross flows into equity mutual funds also increased by about 1% sequentially. Equity capital markets fundraise activities picked up as the primary market saw som
5%
market conditions. These were on the positive. On the flip side, cash volumes declined 5% on sequential basis, new Demat accounts continue to witness a moderation and they declined actual
7%
sequential basis, new Demat accounts continue to witness a moderation and they declined actually 7% on a sequential quarter basis. NSE active clients continue to show a declining trend for the seco
15%
quarter and it declined by about 5% sequentially. Gross flows into debt mutual funds declined by 15% on a sequential basis. So, against this backdrop, you would have seen that our Q3 revenues increa
2%
equential basis. So, against this backdrop, you would have seen that our Q3 revenues increased by 2% on sequential basis to Rs.880 crores almost. It, however, declined by 7% on a YoY basis owing to
Rs.880 crore
st this backdrop, you would have seen that our Q3 revenues increased by 2% on sequential basis to Rs.880 crores almost. It, however, declined by 7% on a YoY basis owing to a 24% decline in the retail cash ADT
24%
sequential basis to Rs.880 crores almost. It, however, declined by 7% on a YoY basis owing to a 24% decline in the retail cash ADTO, that is on the YoY basis. And the second reason was a muted capi
Rs.281 crore
period of last year. As far as the profit after tax is concerned, it declined 6% sequentially to Rs.281 crores. And this decline was mainly on account of the finance cost, which was the cause of increase in
26%
rates and the hikes in the interest rates that we witnessed. It declined on a YoY basis by about 26% as we continue to emphasize on franchise enhancing spends to harness medium-term growth prospects
3.8%
saw continuing improvement in retail derivative market share; it inched up sequentially to about 3.8%. And there has been growth not just in market share, but I think the fabric of growth has been pe
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Guidance — 20 items
Vijay Chandok
opening
“It declined on a YoY basis by about 26% as we continue to emphasize on franchise enhancing spends to harness medium-term growth prospects of the company.”
Vijay Chandok
opening
“Cost efficiencies continue to be an area of attention, but it was done in a manner that we don't compromise on medium-term growth prospects.”
Vijay Chandok
opening
“Going forward, we will continue this journey of diversification and focus on generating multiple sources of revenue and not just multiple sources of revenue, but meaningfully getting these different sources to contribute to further reduce the cyclicality component.”
Vijay Chandok
opening
“Going forward, as we think about this business as a growth lever for us, we have identified certain pockets of growth in terms of geographical locations.”
Vijay Chandok
opening
“And to harness this, we will be strengthening our RM footprint and couple it with our tech investments and analytical capabilities so that we are able to do a very efficient coverage of our clients and drive growth out of this business.”
Vijay Chandok
opening
“As far as loans are concerned, we aspire to emerge as a digital consumer lending distribution powerhouse.”
Vijay Chandok
opening
“We recently started credit card distribution, and we will be soon launching personal loans on our platform.”
Vijay Chandok
opening
“The Adobe project that we had introduced, has been completed in Q3.”
Vijay Chandok
opening
“To sort of conclude, I would just say that we have strong medium-term prospects for our industry.”
Vishal Gulechha
qa
“Now, things are settling down as we entered Q4, and we expect that run rate will be able to gain back.”
Risks & concerns — 10 flagged
It, however, declined by 7% on a YoY basis owing to a 24% decline in the retail cash ADTO, that is on the YoY basis.
— Vijay Chandok
And this decline was mainly on account of the finance cost, which was the cause of increase in interest rates and the hikes in the interest rates that we witnessed.
— Vijay Chandok
Finally, on the last aspect of focus, talking about product launches, initiatives to be future-ready we made, we brought out few into very interesting products like Cash Trade, the integrated Watch List, and we brought “I-Alert,” which is basically a risk-based alert system, which is now being made available to our customers on WhatsApp.
— Vijay Chandok
If you could give your comments on what would be the impact of a) this SEBI circular which came yesterday on blocking of funds for trading in secondary market, because you have got this Neo plan where there would be some float income, so some quantum of that would be helpful?
— Swarnabh Mukherjee
Any impact of the T+1 settlement that is also going to come?
— Swarnabh Mukherjee
As far as we are concerned, the impact of this on our recently launched business would be a very, very small fraction of the total revenue.
— Vijay Chandok
It is much smoother in decline than actually the indices indicate.
— Vijay Chandok
it has been for a year now that while the industry has really seen a lot of traction on the SIP book, but we first of all saw some decline in absolute terms on the forefront and then we are also losing market share, so what was the reason that you would ascribe this to?
— Prayesh Jain
It is only on the transactional side that there has been a decline because the growth of AUM has been sharper than the growth in the revenue in the transactional assets.
— Anupam Guha
Third, it's a very online risk managed product which also augurs well for scale.
— Harvinder Jaspal
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Q&A — 11 exchanges
Q
So, two, three questions here. First, on your customer acquisition. So, you mentioned that you have focused on acquiring quality of customers. I think that is the reason what I see in numbers that your customers from non-ICICI Bank channel has gone down in share significantly; it is now I think 58% of the 3.4 lakhs customers you have acquired this time. While I see that the run rate for ICICI Bank remains steady, the non-ICICI Bank hence have gone down drastically. So, two questions here. Then, what would be the strategy going ahead, are we going to focus more on ICICI Bank customers? And if t
Vijay Chandok
Thanks a lot for your questions. So, to say that we are moving back into ICICI and aborting the non-ICICI will not be accurate. We have been guiding that, we have grown our digital acquisition engine, and there are at least four or five different sub-channels in the digital side, each sub-channel leading to a certain quality of customer. For first five or six quarters, we just increased the number of customers, but with an experience of about five, six quarters and experience of the behavior of these customers, we identified which channels are worthwhile in terms of serious customers… once aga
Q
Just a couple of questions. Firstly, on wealth, now we've added about 5,000 new wealth clients this quarter. Just want to understand, how many of them are actually new to I-Sec and how many of them are just that they crossed the one crore threshold, and hence they converted from like a normal client to a wealth client?
Anupam Guha
Hi, Piran. This is Anupam here. So, of the clients that we add, our strategy are broadly two-fold. One is to really look at our existing customers and really through data analytics and through better engagement, we are able to really increase the share of the wallet. That continues to be bulk of it and that's core to our strategy given the large base of clients that we are working on, that typically is broadly closer to 90% of the acquisitions that we do, and through the open market sourcing is typically 10%. So, in that case, is the open market thing, do you think you need to like rebrand you
Q
I had a couple of questions, firstly on the margin trade funding book, how do you see this business because it has been kind of growing at a very strong pace and to me, I understood it to be a cyclical business, but can you help me understand how are you thinking with respect to this business model and do you think that the growth here is sustainable and this is the 23% market share, do you think it can further increase, do you want to increase this further and also some granularity on the costs and how the funding cost has panned out and how much have you transmitted it to the customer, that
Vijay Chandok
Let me start by responding to your first one, which is on the MTF. So, first and foremost I think we look upon MTF as very strategic and at the same time, we want to grow this in a responsible manner because we want to only deal with the type of customers who are amenable to MTF. We are systematically identifying such potential customers and then offering this to them and we find that over the quarters, we have not only increased the book, but we have also increased the number of customers doing this business with us, so it is being built in a granular way. Secondly, I would say that we should
Q
My first question is on prime charges, so you mentioned that you had only moved a certain set of very valuable customers to the lifetime 999 plan, so are the 1.16 million customers you have in prime, could you just share how many have moved to, has this migration to the 999 for the valuable customer already taken place or is it yet happening, that is one? Within that the balance people they were being the 299, the 999, 1999, so do those still continue and if you could quantify roughly what is the share that is coming from this recurring portion and what is the nonrecurring portion? And third o
Vishal Gulechha
So, as far as prime customer, high value prime customer market share is concerned in the overall 11.6 lakh subscribers, I would say about 30% customers are in our high value prime which are 999 or above till 4999. As far as migration is concerned, I would say that these plans are available and we are aggressively marketing it also to the existing set of customers also. So, more or less, I would say that the customers with good awareness have already migrated to the Neo plans, however, the small portion of the customers in the existing 299 plan or in a traditional life secure plan will continue
Q
Just a couple of questions from my side, first, have I got this correctly, derivative broking is 37% of your total broking revenue, so cash is still about 63%, right?
Harvinder Jaspal
That is correct Madhukar. And one thing that was surprising is that the Neo clients are not growing, so I wanted some comment around given that our total active customer base right now is about 2.7 million customers, how many of them is really trade derivatives and is 0.28 million customers that are Neo customers, what percentage of the derivative trading customers have actually already taken neo, what is your expectation, how much would you grow or how much would you grow within the current customer basis? So, Madhukar, I will give you a sense. Today, the Neo adoption in terms of volume can b
Q
Couple of questions, so what percentage of your customers you are acquiring in Tier-2 and Tier- 3 cities are directly starting off with derivatives trading and what is the wallet size that is one and how has this panned out given that you are acquiring customers from Tier-2, Tier-3 cities in the last 12 months? So, that is one, second is around what was the tech spends for the quarter versus last quarter and what is the outlook on this front, have you done in the near to medium term in terms of tech spends on our app other than the spends which we are incurring on the Neo app which is about to
Ketan Karkhanis
This is Ketan here, so on the tier acquisition happening from Tier-2 and Tier-3, I would say two thirds of acquisitions are happening from Tier-2 and Tier-3 cities. Roughly, as the behavior of the equity customers are, I would say, most of the customers would start with cash equity as the first transaction. Over a period of time, we see customers getting into more riskier transactions including intraday equity and also derivatives, but the customers starting as derivative as their first transaction, we don’t really track it in that fashion, we will look at the customer’s progress over a period
Q
Sir, could you just give us a break up of the insurance products which you have sold this quarter in terms of par, non-par protection, if it's possible?
Harvinder Jaspal
Yes. Hi, Prateek. So, I don't have the exact numbers, but I will try to give you a sense. Roughly about 60 to 70% could be ULIPs. Of the remaining 30, it will be primarily non-par followed by a smaller par. The exact breakup of 30% maybe I can get back to you. No, no, this is very helpful. Sir, secondly, just a clarification. Prime customers, what would be the renewal rates in the sense next year or the persistency of this renewal rate? So, Prateek, I will just clarify one thing. As Vishal explained a while back, we have launched some of the plans which are Lifetime Prime plans. Today in our b
Q
Sir, earlier in your remark that you mentioned that we have seen incremental growth in the number of customers trading in F&O, right? And as of December, if we calculate that our NSE active client base, the percentage is around 31%, right? So, will it be safe to assume that are Neo plan customers will be having some kind of higher activation rate than as compared to the overall portfolio activation rate?
Harvinder Jaspal
Sorry. I am not sure, Deepak, I followed. So, what you are saying is that we have seen growth in total number of derivative customers. Yes. That's correct. We have kind of also disclosed that in terms of normalized number. So, that is correct. Vijay Chandok: Can you just repeat your second part of the question? What was your question? My question is our entire portfolio is operating around 31% activation rate, right? So, do we see that, I mean, can you confer that the Neo customer base activation rate, I mean, those customers, the activation rate is slightly higher than, I mean, it would be up
Q
Good evening. Just two questions from my side. First is on the mutual fund yields, if you can give some color on how the negotiations on fresh yields are shaping up for flows into existing schemes versus let's say how they were two to three quarters back obviously adjusted for the AUM size of any particular scheme? And also, in this regard if you can give the NFO, if you have done the NFO flows during the quarter? Second question is more from a cost perspective. You highlighted that you are sourcing strategy in a non-ICICI Bank or other channels. On the digital side, it has changed a bit towar
Vijay Chandok
So, we will go one by one. The first one is on the mutual fund I think that you had asked. Yes. So, the mutual fund yields, so there were two questions in mutual fund. One is the mutual fund yields and whether we have seen or distributed any new NFOs for the quarter. So, I will take the first one. The yields have been relatively stable. They were slightly inched up, but they are stable at about between 60 to 65, 66 bps. That's the mutual fund yield that we are looking at. The growth in mutual fund AUM is the reason why the revenue has grown. For the new NFO question that you asked, I will just
Q
Thank you for the opportunity. Sir, in the presentation we have disclosed that the Prime contributes around 66% - 67% of the total retail revenue. So, if you want to know the same percentage for the Neo customer, how much they contribute to the total revenue because you said that the derivate contract, they contribute around 60% to 70% of ADTO. So, just if you want to quantify that number for the revenue that will be useful. And second, to extension of this question, out of the 0.25 million customers of Neo, what is the overlap in Prime customer or they are predominantly I-Secure customers?
Harvinder Jaspal
So, I will take the first question, Sanketh. This the revenue contribution would be roughly of Neo would be roughly about 28% within the derivative. As I said, Neo is a trading product. So, the denominator you cannot take the entire equity and cash base as well. Within the derivative portfolio, the revenue contribution is now about 30%. Volume contribution we have already discussed earlier roughly about 70%. That was the first question. The second question that you had was what is the common base between Prime and Neo? We would not have a lot of customers common, because as I was responding to
Q
Thank you very much for a very active participation. Really appreciate all your questions. While some of you asked questions, I think there were some data points which we said that we will, you know, probably give you an indicator of an approximate response to it. We will circle back separately through our IR team and you know, give you a very specific responses to that. If there are any specific questions that you may have as an afterthought, please feel free. We will love to engage with you, love to spend time with you, and respond to whatever questions you may have. Really, really appreciat
Management
Speaking time
Harvinder Jaspal
35
Vijay Chandok
21
Moderator
13
Prateek Poddar
13
Vishal Gulechha
11
Anupam Guha
7
Aejas Lakhani
7
Sahej Mittal
7
Sanketh Godha
6
Deepak Sonawane
5
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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 Q3 Earnings Call for Fiscal 2023. First of all, let me take this opportunity to wish you all and your families a very Happy New Year. I'm sure that by now you would have already perused our “Investor Presentation,” which has been uploaded as was mentioned on our website. Let me start my narrative with sharing a few highlights of the industry performance in the quarter that has gone by and take you through some of the key aspects of the performance of the company. In the previous quarter, I'm referring to the Q2 of this fiscal year, we had witnessed some encouraging signs on most matrices. However, in comparison, this quarter, I'm talking Q3 now, was in some sense a mixed bag as far as some of these parameters are concerned. Some of them saw an improvement on a sequential basis, while some others saw moderation. So, let me just bring out the aspects that actually saw an improvement. The first item tha
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