ICICI Bank IPO - Brief Note

India's Biggest Domestic and Oversease Offering in Follow-on Public Issue (FPO) is now open from June 19th - June 22nd, 2007.
ICICI Bank, the country’s largest bank in terms of market capitalization and the second largest in terms of assets, is coming out with a follow-on public offering (FPO) which opens for subscription on Tuesday, June 19, 2007. The Bank is raising a total amount of Rs. 201.25 billion through a domestic offering and an ADR issue, with both contributing equal amounts. The previous offering was in December 2005 and the issue price then was Rs. 525 per equity share and those who invested have enjoyed substantial gains. The stock has outperformed both the Sensex and the Bankex and most of its peers too.
Price on June 15, 2007 Price on December 20, 2005 Gain % ICICI Bank 908.0 575.1 158% HDFC Bank 1108.0 736.4 150% State Bank of India 1323.7 932.5 142% Sensex 14162.7 9346.2 152% Bankex 7461.6 5117.4 146%
The price band has just got announced as has been fixed at Rs885-Rs950 per equity share. Retail bidders including existing retail share holder will be allotted shares at a discount of Rs50/- per share to the issue price determined through book building process. The min. bid size will be 6 equity shares for retail bidders.
The Bank recently announced the restructuring of its investments in the insurance and asset management subsidiaries into a single holding company (subject to necessary approvals) which will be known as ICICI Financial Services. The new company will hold ICICI Bank’s investments in ICICI Prudential Life Insurance (ICICI Life), ICICI Lombard General Insurance (ICICI General) and ICICI Prudential Asset Management (ICICI AMC). The Bank holds 75% in both the insurance companies while it holds 51% in ICICI AMC. Both, ICICI Life and ICICI General are leaders in the private life insurance and the private general insurance industry respectively, while ICICI AMC is among the top two AMCs in terms of assets under management.
The Bank on June 12, 2007 announced that pursuant to initiation of discussions with potential investors for investment in the proposed new subsidiary, they have received definitive offers from investors for subscription to equity shares of the proposed new subsidiary and for entering into definitive agreements for this purpose. The subscription amount is Rs. 26.50 billion towards fresh issue of shares by the proposed new subsidiary, and the investors would thereby acquire a collective stake of 5.9% in the proposed new subsidiary, valuing it at Rs. 446.00 billion on a post-issue basis. Thus ICICI Bank’s residual stake of 94.1% in the proposed new subsidiary will be valued at Rs. 419.69 billion giving a per share value Rs. 464.88.
In the table below, we give an analysis of the share price of the company:
Current Share price 908 Current No. of shares outstanding (Crs) 90.3 Book value per share as on March 31, 2007 269.8 Market Cap 81,992 ICICI Bank's share of ICICI Financial Services 41,969 Per share price of ICICI Financial Services 464.8 Per share price of core business 443.2 Current P/B (Core business) 1.64
While ICICI Bank’s core banking business is getting valued at 1.64 times its book value, its peers in the private sector banking space are trading at much more expensive valuations as seen in the table below:
Bank P/B ICICI Bank 1.64 HDFC Bank 5.50 UTI Bank 4.95 Centurion Bank of Punjab 4.89 Kotak Mahindra Bank 5.72 Yes Bank 5.45 State Bank of India 2.18
As seen in the above table, the minimum valuation of a private sector bank is a price to book of 4.89, while HDFC Bank is being valued at a multiple of as high as 5.50. Thus the ICICI Bank issue, which will offer a further 5% discount to retail bidders from the existing inexpensive valuation, offers a very attractive investment opportunity.
ICICI Bank Ltd.: Visible upsides to retail investors on listing, although this working has been done at 5% the discount has been fixed as Rs50 per share . The discount now works out to 5.2% at higher band and 5.6 % at lower band.
Also attached are two reports from Business Standard and Business Line newspapers...