ICICI Securities delisting: A course correction better late than never

livemint.com:

ICICI Securities (I-Sec) has been approved by over two-thirds of its public shareholders facilitating its transition into a wholly owned subsidiary of ICICI Bank. Notably, the listing in April 2018 did not yield any material benefit to the parent bank. Thus, the move seems like a course correction.

This is also likely to be taken as a cue by its peers – HDFC Bank, Axis Bank and Kotak Mahindra Bank – to keep their brokerage business private. Even global banking giants such as JP Morgan and Bank of America have shied away from separate listing of their brokerage business. In any case, investors value each business of a company separately to arrive at the sum-of-the-parts, or SOTP, valuation, and ICICI Bank is no different.

To be sure, the brokerage business of banks has never accounted for more than 10% of the total valuation of the four leading banks—ICICI, HDFC, Kotak and Axis. Even if we take a price-to-earnings multiple of 20 times on FY23 earnings base, in line with the current valuation multiple of I-Sec, the market capitalization of the brokerage business of the banking majors seems to be minuscule compared to that of their parent as can be seen from the table alongside. In fact, arguments in favour of keeping the brokerage business of banks unlisted are gaining ground.

Going forward, the outlook for the business is challenging especially in the retail segment as discount brokerages have spread their wings even to remote locations. Discount brokerages offer a flat fee with some of them even offering zero fee. I-Sec and other brokerage firms owned by banks have followed suit by coming up with low-cost pricing offers.