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ICICI Securities: A falling knife from the start

When ICICI Bank, the holding company of ICICI Securities, announced its decision to list the latter in 2018, it came as a surprise to everyone. That was the time when listing of asset management companies was picking steam and the expectation was that taking a cue from the trend, the second largest private bank would also follow suit. But what happened was the exact opposite.

Pure-play securities business were beginning to lose steam. Listed players such as Motilal Oswal Financial Services, Edelweiss Financial Services and IIFL, were largely have a good spell at the bourses because of their diversified businesses and not on the strength of their brokering or distribution businesses.

Consequently, I-Sec’s debut in the bourses was a disaster.

It was a ₹4,000-crore issue, undersubscribed by 78 per cent and had to be heavy lifted by institutional investors. It was listed below its issue price of ₹520 a share and never rose above these levels, until Monday morning (June 26) when the brokerage’s parent announced delisting. The stock rallied 11 per cent, but cheer hasn’t held up for long. On Tuesday, the stock gave up the gains, ending the trade down 2.72 per cent.

Not much support

There are three main components which have not been supportive for I-Sec since the start — the faster and deeper growth of the discount broking industry being one of the most important factors. While I-Sec remains the leader among banks-led brokerages, the dynamics of the industry was at the cusp of an overhaul prior to its listing as well. So was the case with the mutual funds and wealth management businesses. The investment banking arm was also faced with tough competition.

Since the IPO, there has just been a marginal increase in the company’s market share, especially on the trading volumes front, while in the other businesses it has just about been sustaining the overall market share. But little of this has transpired well in terms of financials. On a consolidated basis, the total income in FY23 was seen flat at ₹3,425 crore while net profit declined by 19 per cent year-on-year to ₹1,117 crore. Since listing (from FY18 to FY23), I-Sec’s total income and net profit have grown at a CAGR of 10.8 per cent and 12.4 per cent, respectively. These numbers place I-Sec as an underperformer among ICICI Bank’s listed subsidiaries.

Is that why the bank decided to delist I-Sec from the bourses?

Usually, the board proposes delisting when there is a consensus that the stock market is undervaluing the company. Trading at 15x trailing 12-months earnings, I-Sec stock commands a premium over its peers. Further, the company has also significantly diversified within the ambit of brokerage business in the last five years.

Therefore, the decision to delist may not purely be based on valuations or improving the business. With ICICI Bank growing at a faster pace and I-Sec not contributing as much as a subsidiary to its overall valuations — less than 5 per cent of ICICI Bank’s sum of the parts — the incentive to operate I-Sec as a listed subsidiary isn’t attractive. The decision to delist I-Sec was perhaps to fix that issue.



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