ICICI Securities Ltd IPO - Should you subscribe?

Incorporated in March, 1995, ICICI group's yet another company ICICI Securities Limited is going to hit the primary market. The main reasons the selling shareholders have lined up to offload their shares is to save the LTCG applicable from April 1, 2018. They want to wrap up the IPOs well before March 31, 2018 to ensure LTCG is not attracted.

ICICI Securities Ltd is headquartered in Mumbai, and operate offices in India, the United States, Singapore and Oman. Its is a part of the ICICI Group, one of the largest financial conglomerates in the country and promoted by ICICI Bank, India’s largest private sector bank in terms of consolidated total assets with an asset base of ₹ 10.5 trillion as at December 31, 2017. 

In September 2016, ICICI Group's ICICI Prudential Life Insurance IPO was launched. It was the first life insurance company's IPO  and it heavily disappointed its investors. Though the subscription numbers were pretty impressive and the company is fundamentally strong backed by ICICI Group, its debut on the listing day created major setback for its investors. It listed with discount and wasn't naming to rise to reach at its issue price. However, later the company gained the momentum and started to recover making reasonable profit for its investors. 

Exact after a year, in September 2017, ICICI Lombard General Insurance IPO was launched. At that point in time, due to bearish IPO market sentiments, the subscription dashboard was poor. The IPO hardly managed to subscribe by 3 times, still NII and other quota remained undersubscribed. It listed with a marginal premium and slipped into below issue price. However, later the share gained the momentum and gave reasonable return to its shareholders. It was a test of patience as the share gave hefty return to its shareholders when it reached to its 52 weeks high.

ICICI SECURITIES - OVERVIEW

ICICI Securities Ltd offers its retail customers a wide range of products and services in equities, derivatives and research. It also distributes various third-party products including mutual funds, insurance products, fixed deposits, loans, tax services and pension products. Its retail brokerage and distribution businesses are supported by its nationwide network, consisting of over 200 of its own branches, over 2,600 branches of ICICI Bank through which its electronic brokerage platform is marketed and over 4,600 sub-brokers, authorised persons, independent financial associates and independent associates as at December 31, 2017. The company also offers its customers a wide variety of advisory services, including financial planning, equity portfolio advisory, access to alternate investments, retirement planning and estate planning.

The company  provides domestic and foreign institutional investors with brokerage services, corporate access and equity research. The company is empanelled with a large cross-section of institutional clients, including foreign institutional investors, who it service through dedicated sales teams. 

Its investment banking business offers equity capital markets services and other financial advisory services to corporate clients, the government and financial sponsors. Its equity capital markets services include management of public equity offerings, share buybacks, tender offers and equity private placements. It also provides its clients with financial advisory services in relation to domestic and cross-border mergers and acquisitions, private placements, and restructuring.

ICICI SECURITIES - ISSUE DETAILS 

After deduction of 38,62, 475 shares for ICICI Bank shareholders, only 10% is reserved for Retail investors.

OBJECT OF THE OFFER:

As this is 100% Offer For Sale, the Company will not receive any proceeds from the issue. The objects of the Offer for the Company are to achieve the benefit of listing the Equity Shares on the Stock Exchanges and for the sale of Equity Shares by the Promoter Selling Shareholder. Further, the Company expects that the listing of Equity Shares will enhance its visibility and brand image and provide liquidity to its existing shareholders

REVENUE AND PROFITABILITY

The company has an established track record of delivering returns to shareholders. Its profit after tax was 71.75 Crore, 89.19 Crore, 293.87 Crore, 238.72 Crore, 338.59 Crore and 399.09 Crore in fiscals 2013, 2014, 2015, 2016 and 2017 and the nine months ended December 31, 2017, respectively.

PRICING OF THE SHARES

The company has set the price on much higher side. At upper and lower price band (Rs. 519 - Rs. 520), PE Ranges between 49.38 - 49.48 (Basic and diluted EPS Rs. 10.51 on consolidated basis as on March 31, 2017). The industry average  PE is 37.1. Highest and lowest are 45.2 and 22.

Further, the price set is 25 times of its NAV i.e. Rs. 20.76 as on December 31, 2017 for Rs.5 FV share. The greedy promoter being selling shareholder is asking too much for the share which has average cost of acquisition merely Rs. 5.82 per share. 

There are better options available in the secondary market. Its all peers are trading at lower PE than set by ICICI Securities.

CONCLUSION

The company has debt equity ratio of 1.28 which seems quite high. After the IPO, ratio will remain the same as it is 100% offer for sale. Though it is a leading brokerage firm, there are core competitors providing same scale of services. The competition is increasing. There is no monopoly type of service.

The share seems very expensive. The company is trying to encash ICICI Brand name. However, in such bearish IPO market, investors are very apprehensive before putting their hard earned money in any brand. 

Thank you for reading...Jai Hind

CA Prashant Seta

(Note: I write review based on my knowledge and understanding. The reader of this article should do his/her own research before applying)

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