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ICICI unlocking value - Views on News from Equitymaster
 
 
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  • Mar 16, 2001

    ICICI unlocking value

    Indiaís one of the largest financial institution, ICICI has finally unlocked the value of its stake in ICICI Bank. ICICI has divested a 4.99% of its equity stake in the bank to Prudential Assurance Company Ltd. for a consideration of Rs 170 per share.

    The objective of the divestment is to bring down the promoterís holding to around 40% from the current level of 55.7%, in accordance with the Reserve Bank of Indiaís licensing norms. After this strategic divestment, ICICIís stake in the bank will be reduced to 50.6%. ICICI plans to dilute the stake further to 47% before the end of current financial year (i.e. before March 2001) This would result in the bank ceasing to be a subsidiary of ICICI.

    Shareholding pattern of ICICI Bank
    ICICI 50.6%
    Others 23.9%
    ADR-Holders 14.4%
    FIIs 6.1%
    Prudential Assurance 5.0%
    Total 100.0%

    The sell off is likely to add a gross capital gain of Rs 1.7 billion to its profits in the current year. ICICI can use this gain in writing off its non-performing assets to show a better picture of its balance sheet. The institution is expected to post a flat growth in its profits for the year ended FY01. This is due to lower other income and higher provision on assets. Divestment of a strategic stake in its subsidiary is likely to move up its profits by 11%. If the institution dilutes the stake further to 47%, by selling 3.6% stake, it will result in a rise of 18% (cumulative) in its profits in FY01.

    (Rs m) Valuations
    5% stake (shares in m) 11.0
    Value of stake 1,869
    Cost price 110
    Capital Gain 1,759
    Tax on gain 202
    Net of tax gain 1,556
    Benefits to ICICI (Rs m)
    ICICI's FY01E profits 12,104
    Net profit including capital gain 13,660
    % addition to profits 11%
    Number of shares (m) 785
    EPS (Rs) 17.4

    At the current market price of Rs 94, ICICI is trading at a P/E multiple of 5 times its FY01 projected earnings and a Price/Book value ratio of 0.7 times. Its current valuations are comparatively lower than its global peers.

    Comparative Valuations
    Particulars ICICI ICICI Bank
    Market Price (Rs) 94.0 181.0
    P/E (x) 5.4 22.6
    Book Value (Rs) 133.0 63.0
    Price/Book value (x) 0.7 2.9

     

     

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