ICICI Securities makes weak debut; stock dips 14% below issue price

Shares of ICICI Securities dropped 15 per cent on debut on Wednesday after a disappointing public float. The country’s leading broking and investment banking firm’s Rs 40-billion initial public offering (IPO) had managed to generate demand worth Rs 35 billion from investors last week.
 
According to market players, the poor response and listing was on account of expensive valuations and growth concerns amid the market downturn. The ongoing probe into lending practices at parent ICICI Bank, too, could have weighed on investor sentiment.
 
Among companies having an issue size over Rs 10 billion, the debut show of ICICI Securities is the worst after Coffee Day Enterprises and Reliance Power.
 
Shares of ICICI Prudential Life Insurance, the insurance arm of ICICI Bank, too, had dropped 11 per cent on listing in September 2016. After initial weakness, the stock had managed to recover its losses. It currently trades at Rs 389 — 16 per cent above its issue price.
 
On Wednesday, the ICICI Securities stock fell as much as 16.3 per cent to Rs 435 on the National Stock Exchange (NSE). This comes amid a weakness in the broader market where benchmarks declined over 1 per cent. At an intra-day high of Rs 463, the stock was trading 11 per cent below its issue price of Rs 520. Shares worth Rs 3.4 billion — about a tenth of the issue size — exchanged hands on both the NSE and the BSE. The IPO was entirely an offer for sale by parent ICICI Bank, whose stake fell to 79 per cent from 100 per cent.
 

Analysts cautioned investors from subscribing to the maiden offer citing expensive valuations. Antique Broking had advised clients to avoid the IPO, stating the pricing was 12 per cent above the “fair value estimate”. “We remain liberal in assigning 12 per cent revenue CAGR (compounded annual growth rate) and 17 per cent earnings CAGR over FY18-20E on the high base of FY18. Despite this, valuations stand at 25 times FY20 estimated earnings, leaving little room for error,” the brokerage had said.
 
Centrum Wealth had advised investors to subscribe only for the long term as the offer was “expensively priced” at 49.6 times its FY17 earnings and 34.2 times its FY17 book value”. Expensive valuations notwithstanding, ICICI Securities has managed to clock a high return on capital employed (RoCE) and a return on equity (RoE) on a consistent basis.
 
According to an analyst, a fall in the stock could be a good entry point for long-term investors. “However, investors need to be mindful of the fact that the broking business is cyclical. If stock markets don’t stay buoyant, the company might face growth challenges,” he said.