ICICI FPO Review

Name of the Company: ICICI Bank
Sector/Industry: Banking, Finance and Insurance
Issue Size: Equity Share of Aggregating Rs. 8750 Crores (Of Rs. 10/- Each Share)
Issue Price: Rs 885 - 950
Issue Opens: Tuesday, June 19, 2007
Issue Closes: Friday, June 22, 2007
Professional CEO: Mr. K.V Kamath
Company Website: www.icicibank.com
Book Running Lead Manager: Goldman Sachs, DSP Merrill Lynch, Enam Financial, JM Morgan Stanley Pvt. Limited
Registrar: Karvy Computershare Private Ltd


About the Company: Incorporated in 1994, ICICI Bank is part of the ICICI group. ICICI Bank is India's largest private sector commercial bank. ICICI Bank together with its subsidiaries, offer products and services in the areas of commercial banking to retail and corporate customers (both domestic and international), treasury, investment banking and other products like insurance and asset management.

Objectives of the Issue:

To meet the capital requirements arising out of growth in assets, primarily its loan and investment portfolio and compliance with regulatory requirements.

Strengths:

End-To-End Service Provider: ICICI provides complete financial services like bank services, loans, insurance, asset management, private equity and in each segment it has considerable size. It is fair to call ICICI as a ‘Complete Bank’.
Aggressive Performance: Even though ICICI was a late entrant, today its market capitalization is approx 85000 crores. SBI, which has 150 years of history, has market capitalization of 73000 crores and HDFC which was also incorporated in 1994 has market capitalization of 45000 crores.
Management: ICICI is led by K.V Kamath, a man who holds lot of clout in the corporate world. He was the man who played an important role in settling the Ambani feud. To assist Kamath, ICICI has troika of powerful women led by Chanda Kochar, Kalpana Morparia and Lalita Gupte.
Technological Advanced Bank: ICICI has laid state of art technological platform to serve its customers. It is aggressively pushing virtual banking and internet banking. These concepts will help ICICI to tap rural markets as well as people at the bottom of the pyramid. ICICI also has reduced dependency on physical branches and people because lot of its subscribers use internet banking facilities. Fewer branches and more subscribers, positively impact the bottom-line.


Weakness:

If there is severe downturn in global economy (on the scale of 9/11), then ICICI will end up with loads of bad loans in its portfolio.

Financial Summary:

For the year 2006 -07, ICICI bank achieved topline of 22,994 crores and bottomline of 3110 crores.

Valuation:

The pre-issue EPS is Rs 34.84 and the P/E ratio is 27.26. The valuations are comparable with other private sector banks such as HDFC (P/E = 30.5) and UTI (P/E = 26) but ICICI is better than these banks because it has powerful subsidiaries like ICICI Prudential Life Insurance, ICICI Lombard General Insurance and ICIC Prudential AMC in its portfolio. The price band of 885 – 950 seems to be reasonable. Retail investors are also eligible for Rs 50 discount (icing on the cake)

Go ahead and apply, but take care of these points:

a) Probably we will get firm allotment because the issue size is too large and already signs of liquidity crunch are visible. Hence invest according to our own sweet budget without having to worry about allotment. Lot of other good issues are also in pipeline.
b) This is a FPO (Follow on Public Offer) and not an IPO (Initial Public Offer), hence don’t expect any fireworks during listing. Subscribe to this offer as a pure long term investment call.
c) Go for payment option 2 (fully paid option) to avoid headache of partial payment mode.

Few other interesting points about ICICI and banking sector in India:

Value Unlocking: ICICI bank has set up a new subsidiary company called ICICI Holdings. The bank will transfer to the new entity its investments in ICICI Prudential Life Insurance Company, ICICI Lombard General Insurance Company, Prudential ICICI Asset Management Company and Prudential ICICI Trust Ltd. ICICI has put on block a stake of 5.9% in ICICI Holdings for mind boggling 2650 crores and FII are desperate to get as much share as possible from this pie. So ICICI Holdings, which will be the owner of loss making insurance and AMC business, is worth 44,600 crores. Remove this amount from ICICI’s market capitalization and valuation wise it looks damn cheap.

Come 2009( In 2009, banks have to be Basel –II compliant as well as Indian banking sector will be opened for foreign players) and may be even before that, an unprecedented game of mergers and acquisitions will unfold. You can expect ICICI to come out as leader in this game and grow inorganically.

One more interesting point before I end this comprehensive review. China’s largest bank, Industrial Commercial Bank of China has market capitalization of USD 200 billion. No bank in India is even one tenth of ICBC. Hence a fierce M & A game is inevitable.

Do visit this page on June 25 to get to know about Spice Telecom IPO…..

Inputs:
www.icicibank.com
http://www.chittorgarh.com/newportal/IPO_detail.asp?a=93