Norges Bank may vote against ICICI Securities delisting proposal as shareholders seek higher valuation

Minority shareholders believe that the ICICI Securities stock, which has not shown any fireworks since listing, is finally ripe for a re-rating

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Norway’s government pension fund manager and an Indian PMS are likely to vote against the proposal to delist ICICI Securities, as clamour over low valuation grows among investors, who believe the stock is ripe for a re-rating, said sources aware of the matter.

The news sent ICICI Securities shares soaring over 5 percent. The stock rose to an intraday high of Rs 652, before paring gains and closing at Rs 635, up 2.4 percent from the previous close.

Norway’s Norges Bank Investment Management's Government Pension Fund Global holds 3.13 percent stake in ICICI Securities. A south India-based portfolio management service, which also holds ~3 percent of the company, is also against the delisting. While PMS directly credit the shares to their clients' accounts, they still hold the power of attorney to operate those and vote.

On June 29, ICICI Securities announced that it will delist and become a wholly-owned subsidiary of its parent company ICICI Bank. Public shareholders of the broking firm would be allotted 67 equity shares of ICICI Bank for every 100 equity shares of the company.

Boards of both ICICI Bank and ICICI Securities have approved the proposal as they believe it will lead to more synergies. However, approvals from the shareholders and creditors of both the entities, Reserve Bank of India, the National Company Law Tribunal, and the stock exchanges are still pending.

Also Read: ICICI Securities delisting: Why do shareholders feel short-changed after swap ratio and what next?

Why shareholders feel short-changed

As of September 6 closing price, ICICI Securities shareholders would get only a 3.2-percent premium. ICICI Bank holds 74.83 percent in ICICI Securities and public shareholders the remaining 25.17 percent.

Furthermore, a minority shareholder and SEBI registered PMS provider named Manu Rishi Guptha has sent out emails to all his fellow shareholders to 'fiercely oppose and vote against the delisting resolution'. Over 500 shareholders have joined Guptha's Telegram channel to decide on the next course of action.

"During the ICICI Securities IPO in 2018, the shares were offered at a valuation of 30x trailing earnings. At the time of delisting today, ICICI Bank is offering just 18x of FY23 earnings," he said.

"At 30x earnings, which we believe is a fair valuation, the stock should be valued at Rs 1,030 per share or at least the fair offer should be ICICI Bank share price on the delisting date i.e., a 1:1 ratio," he added.

Shareholders eye re-rating of ICICI Securities stock

Minority shareholders believe that the stock, which has not shown any fireworks since listing, is finally ripe for a re-rating. The company has been diversifying its revenue streams and has a good dividend yield of 3.06 percent. As of June end, the company was sitting on cash and cash equivalents of Rs 8,093 crore.

Revenue contribution from cash broking, which is a cyclical component, has come down to 35 percent from 37 percent a year-ago. Meanwhile, wealth management, derivative broking, and loan distribution segments are growing faster.

Also Read: SEBI moving towards granular risk-based regulation using AI, says Madhabi Puri Buch

In the retail cash segment, the company has a market share of 12.2 percent. In the retail derivative segment, its market share stood at 3.6 percent as of June end. "We continue to maintain a leadership position in margin trading facility with a market share of ~22 percent," the company said in its Q1 FY24 earnings presentation.

ICICI Securities also has a high return on equity at 42.3 percent, second to Angel One at 47 percent, while IIFL Securities and Motilal Oswal Financial Services have sub-20 percent ROEs.

"Other bank-owned securities companies like HDFC Securities, Kotak Securities and Axis Securities are closely held. If ICICI Bank wanted to do the same, then it should not have listed ICICI Sec in the first place," said another minority shareholder, who did not wish to be named.

Votes needed

Life Insurance Corporation of India has a 2.58-percent stake in the company. As per the June shareholding pattern, mutual funds have a ~1 percent stake. Fidelity fund has 1.2 percent while retail investors have 7.12 percent.

The delisting will go through only if approved by a 2:1 majority of public shareholders in the voting process by postal ballot. The dates have not been announced as of now.

Meanwhile, ICICI Securities management also has little idea on the delisting progress. During a Q1 FY24 earnings call, managing director and CEO Vijay Chandok said, "This is an action from the shareholder side. So, they would be the right people to comment on this. I mean, I really don't know what really, you're expecting me to speak on this."