Call it the Modi effect or the eagerness on promoters’ part to take advantage of the soaring stock markets, India’s IPO market is seeing heightened activity. As many as seven new companies have listed in the first six months on NSE and BSE – two of India’s biggest stock exchanges. These companies raised a combined sum of INR3,445 crore (USD543 million). While this figure may look paltry considering some startups have raised more this, it is surely an improvement from just five listings in all of 2014.
More listings mean more diligence for the market regulator Securities and Exchange Board of India (SEBI) which has been often accused of frustrating promoters and investment bankers with the elaborate time it takes before giving its blessings. However, the regulator has got back in action in the first-half of the year, approving as many as 21 IPO applications. This is the highest number in the corresponding timeframes over the last four years. SEBI had approved 20 applications during H1 2012 but the figure dropped to just 10 in the first six months of 2013. Sluggish market conditions brought this figure down to a grand total of 5 in the first-half of 2014. Considering last year’s abysmally low figure, the revival in the market is not accidental in nature.
Turnaround just got turned around
The criticism of SEBI regarding the excruciatingly long time to approve IPO applications is not misplaced. The regulator took an average of 248.8 days, including weekends and holidays, to clear the 5 IPO applications in the first-half of 2014. This included the now legendary turnaround time of 348 days it took before giving a go ahead to edible oil manufacturer NCML Industries. To be fair with the regulator, this turnaround includes the time when SEBI waits for clarifications on its queries from lead managers.
SEBI performed much better in the first six months of 2015, taking an average of 97 days in approving the 21 applications. The fastest approval came for Syngene International in just 51 days while the application of SMC Global Securities remained in the process for 170 days, taking the maximum time. The following chart captures this massive transformation at SEBI.
Listings raining but returns rare
Along with the growing interest in IPO applications, companies already having SEBI clearances were quick to take advantage of soaring stock markets. This means companies like Ortel Communications, Adlabs Entertainment, Inox Wind, and MEP Infrastructure Developers which secured clearances in 2014, brought their IPOs in the first-half of 2015. These companies were joined by VRL Logistics, UFO Moviez, and PNC Infratech which received approvals recently. In total, these companies mobilized nearly INR3,450 crore from the primary market.
Even though new market listings are growing, there are disturbing trends warranting caution to be exercised by investors, especially by retail investors. Out of the seven listings in the first-half, three had their retail quota undersubscribed while another one was slightly above full subscription level. Although Adlabs Entertainment had 137% subscription in retail quota, it was only after the company extended the IPO dates, lowered price band, and offered a discount to retail investors. Unsurprisingly, these stocks have not fared well after listing. Inox Wind and VRL Logistics were the only companies which left some money on the table and received good response from retail and HNI categories.
Our analysis of the recent listings indicates that investors lost money in Ortel Communications, Adlabs Entertainment, MEP Infrastructure, and UFO Moviez. Although share prices recovered in the subsequent weeks after listing, all the four stocks were in red six weeks after getting quoted on the bourses. The chart also indicates that IPO investors are better off by not selling on listing and holding for six weeks. By this time, the selling pressure subsides from key shareholders such as anchor investors.
IPO pipeline swells to 19
By the end of June 2015, India’s IPO pipeline had swelled to 19 companies with SEBI approvals in hand. These companies plan to raise at least INR7,000 crore through the public issues in the coming months. However, there are apparently no mega IPOs in the store as it is rather a diverse set of companies raising funds than a single company in the limelight. Only four of these 19 companies plan to raise in excess of INR500 crore and the biggest public offer is likely to be of AGS Transact Technologies at INR1,350 crore.
Despite soaring valuations in secondary market and growing risk appetite in the primary market, some of these companies may eventually decide to give IPO plans a miss. Rashtriya Ispat is one such company which is believed to have shelved its listing plans.
India’s growing IPO pipeline
|Company||Issue size (in INR crore)||Number of shares|
|Rashtriya Ispat Nigam||488,984,620|
|Shree Pushkar Chemicals and Fertilizers||75|
|ACB (India) Limited||415*||30,940,000|
|Power Mech Projects||300*||4,269,000|
|Sadbhav Infrastructure Project||425|
|SMC Global Securities||125|
|AGS Transact Technologies||1,350|
|Shree Shubham Logistics||210|
|Amar Ujala Publications||60|
|S H Kelkar and Company||250|
|Catholic Syrian Bank||400|
Source: DRHPs filed with SEBI, * indicates estimates
Another interesting aspect is regarding the emerging sectoral preferences. There are few IT players in this list and the same is true for realty companies. The list is mostly populated by old economy businesses like infrastructure development, dairy, and manufacturing.
While the current pipeline may not be very exciting from the standpoint of picking multibaggers from the emerging sectors and businesses, there are several such plays waiting to tap the market. Important among these are India’s biggest airline company, customer support software company and Zendesk competitor Freshdesk, and ecommerce player Infibeam which have filed IPO papers with SEBI.