First 💯!

This is the hundredth post on this blog; a culmination of 25 months’ journey. When I started, I didn’t know if I’ll write ten, let alone almost a post a week for two years plus. This is how compounding works- you start small, keep going as far as you can see, reach there and keep moving forward. In a few years, you’ve outpaced even the most optimistic projections and compounded yourself into something you could not have imagined.

So, ICICI Securities today announced the swap ratio- 67 shares of ICICI Bank for every 100 shares of ISEC which effectively means at current price of the Bank’s shares, ISEC is being valued at ₹628/-. I’ve two points to add here:

1. I don’t think the transaction will happen at this price when you’re trading ISEC shares at almost two year’s low with bank’s shares at lifetime highs. It’s a bad corporate governance precedent and will certainly dilute the premium ICICI group commands. I won’t be too surprised if all the group companies open sharply lower tomorrow. The fear will be that the moment ICICI Pru or Lombard shares fall the next time, Bank will get them delisted at throwaway prices. It’s almost as bad a price as Vedanta offered in 2020. There’s no premium at current valuations and is an affront to minority shareholder rights.

2. I do believe that the shares will rally because market will sense that the group has to raise the price as ISEC shares are in effect a warrant to buy ICICI Bank’s shares with the current .67 times valuation being the absolute floor. The arbitrageurs will not allow the shares to fall for simply because unless the Bank shares collapse, markets will not let the arbitrage widen. Mind you, it’s the beginning of a booming bull run and not the depths of a multi year bear grip that prices will be allowed to remain depressed for far too long.

The reason I’m so sure that the price will be revised upwards is because on Monday the 26th, over 1.65crore shares were traded and price didn’t crash a bit. So someone did want to take delivery and raise his bargaining power with the management. Remember, you need at least twice the votes of public shareholders in favour to get it delisted which means ICICI group needs 2/3 of total shareholders to vote yes. So anyone with over 9% total shares can veto this deal. LIC has been a big votary of value in Vedanta deal when it put its foot down and asked for ₹350 per share price. So a big FII and LIC can easily veto this deal if they combined have 9% shares which in this case is a possibility.

Anyways, even at this price, you are not getting junk but a fantastic company which is a big contributor to the India growth story. ICICI Bank is currently $78 Billion market cap and in a ten year period, there is not reason for it to not be a $200B company. I’ve reached a stage where I’m not selling any shares I own currently unless the business is going down the dumps.

You sell a stock if you think that the ceiling has been hit, think Berkshire Hathaway. It’s trading at more that $500K per share and people thought $5000 was a big deal. If you’re as excited about the India story as I am, just imagine how big India’s banks will become when the country is a $10 trillion economy! There’s a fantastic interview of Manish Chokhani on CNBC on this matter and it’s a great watch.

So my hunch is that the bottom has been made in ISEC and in days to come, market will rerate the stock upwards. I will at least want a parity on the swap ratio, a 1:1 to tender my stocks though as you know, I’ve always believed that ISEC is worth a lot more than that.

PS: one stock I do absolutely regret not owning despite always having it on my watchlist is ICRA- owned by Moody’s.