Rare Indian Shares ( by Ashwani K Aggarwal ): Altius Investech-Analysis of HDFC Securities

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A Complete Deep-Dive report on

HDFC Securities Ltd

About The Company

Headquartered in Mumbai and having its branches in many of India's largest cities and towns, HDFC Securities was established in 2000. HDFC Bank which owns a 95.6% stake in HDFC Securities is its holding company.
Indocean Securities Holdings Limited, HDFC Bank and HDFC Limited initially collaborated on it as a joint venture. It offers a vast array of financial services and products related to debt, real estate, gold, and equity.

Major Milestones

HDFC Securities MF AUM has grown 17% vs Industry AUM growth of 7% due to increased focus on SIP book and new client participation.
7th Largest IPO DIstributor (Maintained leadership with 21% market share)
6th Largest Sip Distributor (Sip doubled from 3.4L to 6.8L)
3rd Largest Life Insurance Mobilizer

Dividend History

FY2023 - INR 440/sh
FY2022 - INR 547/sh
FY2021 - INR 318/sh
FY2020 - INR 135/sh
FY2019 - INR 110/sh

HDFC Securities New Platform

A discount broking platform that allows trading and investing at a single price point of Rs 20 similar to other online platforms such as Groww, 5Paisa, and Zerodha.

HDFC Sky's USP is its margin trading facility which is available at a 12% interest rate whereas its competitors charge between 18 to 21%

Its target market is Gen-Z, millennials, and new-age investors.

HDFC Sky is accessible to everyone, in contrast to HDFC Securities, which restricts demat account opening, trading, and investment to HDFC Bank customers only.

Financials

In FY 21-22, HDFC Securities profitability increased by 2.5 times, from ₹384 crores to ₹984 crores. Its profits for FY23 were ₹777 crores, which resulted in consolidation due to sluggish market conditions, inflationary trends, and a higher base.

9 Months FY2023 Results

HDFC Securities’ revenue increased by an astounding 28% in 9MFY24, from INR 1,400 Crore in 9MFY23 to INR 1,800 Crore. The company’s expanding market presence and successful strategic efforts are the reasons behind this revenue spike

A reduction in the EBITDA margin from 58% to 50% in spite of the increase in revenue indicates that the company’s cost control methods require examination.

Despite the considerable gain in revenue, the Profit After Tax growth of 8% suggests a slight rise in net earnings. This implies that not every rise in revenue has resulted in higher earnings at the bottom.

Angel Broking Comparison Analysis

1. Growth in Revenue and PAT

The first nine months of 9MFY23 saw angel broking generate 2915 Cr in revenue, up from 2176 Cr in 9MFY24. a 34% increase. The revenue increase of Angel Broking, at 34%, is slightly higher than that of HDFC Securities.

Additionally, PAT increased from 624 Cr in 9MFY23 to 785 Cr in 9MFY24. a 25% increase. The 25% PAT increase for Angel Broking is a significant improvement over HDFC Securities, indicating either more effective cost control or a more diverse revenue mix.

2. Market Value

Angel Broking has a capitalization of INR 28,000 crore and a P/E ratio of 26x, which indicates a higher market valuation. The market’s assessment of the companies’ growth prospects and investor trust in Angel Broking may be reflected in this valuation discrepancy.

HDFC Securities Investment Considerations

1. Placement in the Market

Being a reputable brand in the financial services industry, HDFC Securities has room to develop, especially given its current unlisted market valuation.

2. Macroeconomic Well-being

Potential investors should be wary of the decline in EBITDA margin. The way that HDFC Securities handles cost management and how that affects overall profitability must be closely observed.

3. Comparative Effectiveness

The listed market performance of Angel Broking provides a useful yardstick. It is important to take into account variations in consumer segmentation, market strategies, and company structures while assessing HDFC Securities’ potential.

4. Possibility of Gain

HDFC Securities might be a profitable investment given its current market valuation and development trajectory. Particularly if it maintains its growth momentum after becoming public.

Valuation

At the moment, ICICI Securities is trading at a P/E of 17.5, Angel One is trading at a P/E of 25.5 and Hdfc Securities is valued at a P/E of 20.4x

The valuations seems reasonable in comparison to its peers. From its peak of 18,500, HDFC Securities has demonstrated a healthy correction of almost 45%, and given the current values and business performance, it may be an intriguing opportunity.

Key Numbers (as of Jan'2024)

P/E - 22x
P/B - 9x
EPS - INR 490
BVPS - INR 927
Market Price - INR 10800
Market Cap - INR 15800 Cr

IPO Plans

HDFC Bank will be looking at the public listing of HDFC Securities only after its merger with parent HDFC Ltd goes through, a top official said on July 16.

HDFC Bank and HDFC in April announced the USD 40 billion merger, touted as the largest such transaction in corporate history, saying that it will take up to 18 months to end.

Final Thoughts

In its pre-IPO stage, HDFC Sec shows great development potential; nonetheless, issues with cost control need to be carefully considered. The parallel to Angel Broking clarifies its place in the market and its prospects within the larger financial services industry. Before choosing to invest in HDFC Securities, investors are recommended to take market conditions, investor mood, and strategic efforts into account. An important turning point in the company’s development may be the impending IPO, which could reveal value to investors prepared to study the subtleties of the broking industry.