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Mega equity issue proposal pulls ICICI shares down

Share price of India's second largest bank fell by as much as 9.6% and it was the top loser for the day in BSE Sensex and Nifty, reports MC Vaijayanthi.

business Updated: Apr 30, 2007 20:11 IST

It was a bad opening for ICICI Bank stocks this Monday morning. Share price of India's second largest bank fell by as much as 9.6 per cent in the early trade and it was the top loser for the day in BSE Sensex and Nifty. It closed the day with loss of 7.26 per cent on BSE at Rs 865.

Less than expected fourth quarter results and the proposal for Rs 20,000 cr equity issue in the domestic as well as international markets was not taken kindly by the investors. "Both time and quantum of dilution by the bank has been a surprise," said a research note from ASK Raymond James.

"It got the pounding it deserved," said Arun Kejriwal, Kris Research. "They raised money one and half years ago and again they are raising money. They are under lot of pressure," Kejriwal said. ICICI Bank had raised Rs 8000 cr in December 2005 through a domestic public issue and issue of ADS.

"The overall profitability for the full year is healthy. But whether the money raised by the issue will be enough or will they come to market again for funds is the issue," said Rajesh Malhani, banking analyst at Prabhudas Lilladher. He expects the stock to under perform over two quarters.

Majority of the analysts are of the view that the stock will not do well in the short term but has the capacity to perform better once the equity issue gets over and picture gets clearer. The equity dilution is estimated between 20 to 30 percent on expectations of the issue being priced anywhere between Rs 750 to Rs 875.

If the deal is done at the price of Rs 930 (previous closing), the fair for the banking business rises by 15 per cent due to better growth and earnings outlook, was the comment made by Morgan Stanley in its morning call.

The equity dilution should not be a major concern says Kashyap Jhaveri of Emkay Share. "The bank had in the past quickly rammed up the return on equity after the previous issues," commented Jhaveri. He has maintained the 12 month price target for the stock at Rs 1084.

K V Kamath, MD & CEO said that the bank wanted to be an early mover as it anticipates $500 bn investments by the Indian industry in the next three years. The bank expects the average loan growth of 25 per cent over that period and said the current issue would meet the demand.

First Published: Apr 30, 2007 20:08 IST