ICICI Bank’s delisting plan for ICICI Securities faces investor scrutiny

Following ICICI Bank’s June announcement to delist its broking arm, ICICI Securities, there has been a notable shift in shareholding patterns with institutional investors increasing their stakes significantly. Foreign portfolio investors’ holdings rose from 9.48% to 10.06%, while domestic institutional investors also reached a 10.06% stake. Notable mutual funds such as NJ, DSP, and Motilal Oswal have increased their shareholdings in October, whereas Sundram and Bandhan have reduced theirs.

In an effort to streamline its operations, ICICI Bank has proposed a share swap deal for ICICI Securities shareholders, suggesting an exchange of 67 ICICI Bank shares for every 100 shares of ICICI Securities held. This proposal has drawn mixed reactions from the investment community. Bhavik Thakkar, CEO of Abans Investment Managers, has voiced concerns over the valuation suggested by the swap ratio. He points out that given ICICI Securities’ strong performance in the September quarter and its low price-to-earnings (PE) multiple relative to industry peers, shareholders might be better served with a higher swap ratio or even by reconsidering the delisting altogether.

On the other side of the debate, Vamsi Krishna, CEO of StoxBox, echoes Thakkar’s sentiment regarding the undervaluation of ICICI Securities through the proposed swap ratio. He highlights the company’s evolution into a wealth-tech platform and its significant market share as factors that should command a higher valuation.

Conversely, analysts from LKP Securities see potential benefits for investors in the deal, suggesting that the swap could be advantageous.

ICICI Securities reported a net profit of ₹1,118 crore for FY23 and is currently trading at a PE multiple of 17.5 times. This is in contrast to Angel One, a peer in the broking industry, which trades at a higher PE multiple despite having a lower net profit of ₹890 crore.

The differing perspectives on the value proposition of the share swap deal underscore the complexities involved in corporate restructuring and highlight the need for careful consideration of shareholder interests. As institutional investors adjust their positions and analysts weigh in on the proposed terms, ICICI Bank’s next steps will be closely watched by the market.

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