Should ICICI Securities Limited’s (NSE:ISEC) Recent Earnings Worry You?

When ICICI Securities Limited’s (NSE:ISEC) announced its latest earnings (30 June 2018), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were ICICI Securities’s average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not ISEC actually performed well. Below is a quick commentary on how I see ISEC has performed.

Check out our latest analysis for ICICI Securities

Did ISEC’s recent earnings growth beat the long-term trend and the industry?

ISEC’s trailing twelve-month earnings (from 30 June 2018) of ₹5.73b has jumped 53.54% compared to the previous year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 27.15%, indicating the rate at which ISEC is growing has accelerated. What’s enabled this growth? Let’s see if it is merely a result of industry tailwinds, or if ICICI Securities has seen some company-specific growth.

In the past couple of years, ICICI Securities increased its bottom line faster than revenue by effectively controlling its costs. This has caused a margin expansion and profitability over time. Looking at growth from a sector-level, the IN capital markets industry has been growing its average earnings by double-digit 33.75% in the previous year, and 17.76% over the last five years. This growth is a median of profitable companies of 25 Capital Markets companies in IN including Nahar Capital & Financial Services, Nahar Capital & Financial Services and Shivansh Finserve. This shows that whatever tailwind the industry is deriving benefit from, ICICI Securities is capable of leveraging this to its advantage.

NSEI:ISEC Income Statement Export August 2nd 18
NSEI:ISEC Income Statement Export August 2nd 18
In terms of returns from investment, ICICI Securities has invested its equity funds well leading to a 58.39% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 20.95% exceeds the IN Capital Markets industry of 3.69%, indicating ICICI Securities has used its assets more efficiently. However, its return on capital (ROC), which also accounts for ICICI Securities’s debt level, has declined over the past 3 years from 98.74% to 81.91%.

What does this mean?

ICICI Securities’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. While ICICI Securities has a good historical track record with positive growth and profitability, there’s no certainty that this will extrapolate into the future. I suggest you continue to research ICICI Securities to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for ISEC’s future growth? Take a look at our free research report of analyst consensus for ISEC’s outlook.
  2. Financial Health: Is ISEC’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 30 June 2018. This may not be consistent with full year annual report figures.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.