| ICICI Securities Limited | ||||
| Rated amount enhanced for Commercial Paper | ||||
| Rating Action | ||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ratings on the existing debt instruments of ICICI Securities Limited (I-Sec) at ‘CRISIL AAA/Stable/CRISIL A1+’. The ratings continue to reflect the company’s majority ownership by, and strategic importance to, ICICI Bank, strong market position in the retail broking segment, and robust risk management systems. These strengths are partially offset by uncertainties inherent in capital market-related businesses. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of ICICI Securities Ltd and its subsidiaries, collectively referred to as I-Sec. This is because all the entities have significant operational and management linkages and operate under a common brand. CRISIL Ratings has also factored in the strong support from the parent, ICICI Bank, given the strategic importance of the entity to the parent along with the shared brand name. ICICI Bank is the majority shareholder of I-Sec, with a stake of 74.86% as on September 30, 2022.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
ICICI Bank holds 74.86% stake in I-Sec, post the initial public offering in March 2018 and offer for sale (OFS) in December 2020. Institutional and retail broking is a key activity for the ICICI group, and I-Sec not only enables the group to provide the entire range of products related to capital markets, but also enhances diversification of the group’s revenue profile. I-Sec distributes many financial market products, including insurance and mutual funds, for the ICICI group.
ICICI Bank, along with its group companies, has a strong presence in all major financial segments, including retail broking. I-Sec is a strong player in the retail equity broking business, with market leadership in online retail broking. It has an active client base of ~35 lakh clients as of September 2022 (~26 lakh clients as of September 2021).
I-Sec also has a strong presence in distribution of financial products (mutual funds, insurance etc.) and is the second largest distributor of mutual funds among non-banks. It is among the top players in the investment banking space in India and specializes in issue management. CRISIL Ratings believes I-Sec will maintain its leading position in the equity-broking segment over the medium term on the back of its strong reach, sound research capability, and comprehensive and sophisticated internet-based trading platform.
Risk management and monitoring systems are adequate to mitigate risks arising from uncertainties inherent in the retail-broking business. Majority of I-Sec clients’ are under the three-in-one model for its online retail broking, wherein the bank account and demat account in ICICI Bank, and icicidirect.com trading account are interlinked.
On the investment banking side, I-Sec follows a sound system for selection and execution of underwriting mandates. Other aspects of the risk management framework for margin financing include maximum exposure limits per client, stock-wise exposure limits for each client, and stock and sector exposure limits across the company as a whole. The company has also clearly defined limits for undertaking proprietary trading.
Weakness:
The equity broking business is cyclical, and brokerage volume and earnings are highly dependent on the level of trading activity in the capital market. Return on equity (RoE) fell to 65.0% in fiscal 2022 from 70.5% in the previous fiscal. For the half year ended September 30, 2022, annualised RoE was 45.6%. However, the proportion of less volatile non-broking income, especially the distribution income, is significant and has been growing over the years. The proportion of broking income stood at 38% for H1FY23 down from 45% for fiscal 2022. |
Liquidity: Superior I-Sec has comfortable liquidity due to the agency nature of its business and healthy liquidity cushion in form of cash and bank balance of Rs 192 crore, liquid investments of Rs 1,408 crore, fixed deposits (liened) of Rs 5,194 crore and unutilised bank lines of Rs 1,501 crore as on January 11, 2023. Apart from this, I-Sec has healthy inflow from its other assets, which can be liquidated and realised at short notice. Its borrowing as on the same date stood at Rs 10,815 crore, comprising commercial paper. I-Sec also benefits from the support from ICICI Bank
ESG profile CRISIL Ratings believes that ICICI Securities’ Environment, Social, and Governance (ESG) profile supports its already strong credit risk profile.
The ESG profile for financial sector entities typically factors in governance as a key differentiator between them. The sector has reasonable social impact because of its substantial employee and customer base and can play a key role in promoting financial inclusion. While the sector does not have a direct adverse environmental impact, the lending decisions may have a bearing on the environment.
ICICI Securities has an ongoing focus on strengthening various aspects of its ESG profile.
ICICI Securities’ key ESG highlights:
There is growing importance of ESG among investors and lenders. ICICI Securities’ commitment to ESG will play a key role in enhancing stakeholder confidence, given high shareholding by foreign portfolio investors and access to both domestic and foreign capital markets. |
Outlook: Stable CRISIL Ratings believes I-Sec will maintain its strong market position in the retail broking and investment banking segments and remain strategically important to ICICI Bank. |
Rating Sensitivity factors Downward factors:
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About the Company I-Sec, a majority owned subsidiary of ICICI Bank, offers broking services to institutional and retail clients in the cash equity, derivatives, currency and commodities markets. Apart from strong online presence, it had a well spread-out distribution network of 139 branches as on September 30, 2022. I-Sec also distributes public issues to corporates and high-net-worth individuals, and has a strong presence in investment banking. It has a large client base of around 84 lakh customers (as on September 30, 2022) across business segments. It is also growing its wealth management business. I-Sec distributes many financial market products, including insurance, mutual funds and digital loans, for the ICICI group, as well as of other players.
For fiscal 2022, I-Sec reported a PAT of Rs 1,383 crore on total income of Rs 3,439 crore, against a PAT of Rs 1,068 crore on a total income of Rs 2,586 crore for the previous fiscal. For the half year ended September 30, 2022, it reported a PAT of Rs 574 crore on total income of Rs 1,660 crore, against Rs 662 crore and Rs 1,604 crore, respectively, for the corresponding period of the previous year. |
Key Financial Indicators
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Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Yet to be issued |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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