Why is ICICI Securities Delisting?

Share price of ICICI Securities, one of India's largest broking firms, is all set to delist from the securities market.

Its parent ICICI Bank will once again own 100% of ICICI Securities, after six years of holding a 74.77% stake in the company.

The delisting will take place by way of a share swap agreement.

The proposal was approved by 83.8% of public institutional shareholders, while it was opposed by 67.8% of public non-institutional shareholders.

The ownership of the broking firm is split between institutional investors (16.68%) and non-institutional public shareholders (8.55%) as of 31 December 2023.

Share-Swap Ratio Disappoints Investors...

During the delisting vote for ICICI Securities, retail shareholders showed significant resistance.

Many expressed their discontent on social media platforms, citing their dissatisfaction with the way ICICI Bank was soliciting their votes.

Some shareholders even reported receiving repeated calls from bank employees who were urging them to support the proposal.

Proxy advisory firms, including Stakeholder Empowerment Services (SES), Institutional Investors advice Services (IiAS), InGovern, and ISS Governance, have recommended shareholders to vote in favor of the delisting proposal.

Investors feel the proposed merger ratio deserves scrutiny on a few counts including the below:

A little backstory...

About eight years ago, under pressure from increasing non-performing loans in a deteriorating macro-economic environment, ICICI Bank decided to list key subsidiaries to shore up its own capital base and to negate any potential capital infusion requirement in its subsidiaries from the parent.

Listing of its subsidiaries was always planned but the deterioration in ICICI Banks balance sheet accelerated this decision.

ICICI securities was listed in April 2018. Now, ICICI Bank wants to merge with ICICI Securities, offering investors 0.67 shares of ICICI Bank for every one share in ICICI Securities.

Here's what Ajit Dayal, the Founder of Quantum Information Services which owns Equitymaster and PersonalFN, wrote in a recent editorial:

• The scale of undervaluation of ICICI securities in the swap ratio is even more apparent based on the valuations for listed peers. The merger ratio is valuing ICICI securities at a 30% -77% discount to its other listed peers based on consensus earnings forecast for fiscal year ending March 2024. I guess the valuation experts and the proxy agencies forgot to use publicly available information to make their judgements.

He further adds...

• In its defence of this absurd ratio, the management of the company has stated that ISEC has rarely traded above the proposed merger set price in its history. Hence, the management claims that the valuation is appropriate given the cyclical nature of the business.
  
  Data shows that ISEC consistently traded above the proposed merger price of Rs 628 from 29th June 2021 to 3rd March 2022 (source NSE).
  
  Another way to interpret this low-balled ratio is that the management and its investment bankers ignored the fundamental 'cyclicality' nature of the ISEC business and overpriced its IPO!

You can read the entire article here: ISEC / ICICI Bank: Boards and proxy agencies support a Rs 18 bn heist.

Reasons Cited for ICICI Securities to Delist.

ICICI Bank has mentioned the reasons for delisting stating that the securities broking sector is cyclical and heavily relies on macroeconomic conditions and buoyancy in equities market.

However, ICICI Securities has enough internal accruals to support its expansion, as it has minimal capital requirements.

As per a report by The Economic Times, ICICI Securities is being delisted due to the overlapping in business operations with ICICI Bank.

What Next?

According to the agreement, for every 100 shares owned by public shareholders in ICICI Securities, they will receive 67 shares of ICICI Bank.

These shares will be issued in exchange for the cancellation of their shares in ICICI Securities.

How ICICI Securities Share Price Has Performed Recently

Shares of ICICI Securities have surged 15.1% since the company announced its delisting plan through a scheme of arrangement.

In the past four trading days, the stock is down by 4.7%.

ICICI Securities share price touched a 52-week high of Rs 865 on 31 January 2024 and a 52 -week low of Rs 417 on 29 March 2023.

In the past one year, shares of the company have surged over 60%.

Here's a table comparing ICICI Securities with its listed peers -

Comparative Analysis

Company	ICICI Securities	Angel One	Motilal Oswal	Share India	SMC Global
ROE (%)	42.9	48.5	15.9	53.1	12.9
ROCE (%)	18.3	44.3	12.9	53.9	15.6
Latest EPS (Rs)	44.1	125.3	126.4	108.7	13.7
TTM PE (x)	16.5	24.2	13.9	14.5	9.4
TTM Price to book (x)	6.3	8.9	3.2	3.9	1.3
Dividend yield (%)	2.6	1.3	0.6	0.5	1.9
Industry PE	23.5
Industry PB	4.2

Data Source: Ace Equity

What do you think of the delisting event and share swap ratio? Share your views in the comments section.

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