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Special Report

Published on: July 12, 2021, 3:07 p.m.
It’s raining IPOs!
  • Illustration: Panju Ganguli

By Daksesh Parikh. Executive Editor, Business India

Investors on Dalal street are a different lot. While people across India are waiting for monsoon rains, investors on Dalal Street are eagerly waiting for the IPO storm. This is set to gather momentum from mid-July and go all the way up to October. Zomato’s IPO, which is scheduled to open in the second fortnight of July, will set the ball rolling, with an IPO and an offer for sale of nearly Rs9,400 crore.

A food delivery company, backed by private equity investor Ant group and a BSE-listed company Infoedge (better known for its portal, Zomato will be amongst the handful of start-ups to opt for listing in India. A company that was set up in 2008, Zomato is looking at a post-listing market cap of nearly Rs60,000 crore. A marginal gain on listing and Zomato would be rubbing shoulders with the likes of Indus Towers, Havells, GAIL and Marico; it may even have a market-cap larger than Infoedge.

Zomato’s listing will also spur new-age start-ups, especially those on tech platforms, to list in India. Paytm is expected to raise Rs21,500 crore from a new issue of shares and offer for sales by the existing promoters. Besides these two large homegrown start-ups, a few more like PolicyBazar and Delhivery have drawn up listing plans. The former, promoted in 2008 by Yashish Dahiya, Alok Bansal and Avaneesh Nirjar, is an insurance aggregator, providing a comparison of insurance products. Delhivery, another unicorn, which also has a host of private equity companies (including SoftBank and Fidelity) backing it, is planning to raise about Rs3,500 crore on the bourses. This start-up, which was started in 2011, is reportedly looking at a valuation of upwards of $3.5 billion. 

Many of the companies aspiring listing are planning to do it before Diwali, fearing that Life Insurance Corporation, which is seeking its maiden listing, with plans to raise R80-100,000 crore, will elbow out smaller issues.

And between Zomato and LIC, which are at two extreme ends, there will be several other issues, which are also planning to tap the capital market. While the exact quantum of amount which will be going in the IPOs cannot be ascertained, a ballpark figure would suggest a minimum of at least Rs2.5 lakh crore.

Of course, the revival in the new issues market is not just limited to India. The world over, new issues markets are buzzing with activity. The first quarter saw new issues worth over $200 billion being raised. While the US led the way, the EU also saw new issues to the tune of nearly $22 billion coming up.

Will the boom in the IPO market adversely impact the secondary markets? “Frankly, I don’t think so. Both primary and secondary markets are co-related and the heightened investor interest in one will benefit the other market. There is ample liquidity in the system and there is not even a remote possibility of money being pulled out of one market,” says Ajay Garg, founder, Equirus Capital, an integrated financial company. “Of course, valuations will play a key role in determining the success of the IPO. Companies may be good, but investors normally weigh in the pros and cons before investing. Steep valuations are not necessarily a recipe for success in attracting retail investors.”

One view is that allowing non-profit-making companies to list will also be a first in the Indian market and one has to see how SEBI reacts to retail participation to such issues. “Traditionally, Indian markets have been looking at profit making companies only,” observes Niren Shah, country head, Norwest Partners. “However, having seen the soaring valuation enjoyed by tech companies and the respect they command in global markets, Indian investors are also looking at tech and tech-enabled companies more keenly now. I am of the opinion that new-age companies will see good response from retail customers.” Companies are required to have a scalable model to command response, Shah adds.

  • Garg: valuations will play a key role

    Garg: valuations will play a key role

One reason the new issues do not generally fail is that there is ample liquidity among investors, with some even having access to cheap money provided by NBFCs and banks. Bankers and NBFCs are more than happy to lend to investors. For example, Clean Tech Science & Technology issue, which was planning to raise around R1,550 crore, was oversubscribed 93 times. VR Infra also met with a similar response, its issue getting oversubscribed 102 times. In the case of these two IPOs, the total funds committed were to the tune of Rs2.42 lakh crore, equivalent to the country’s health budget.

Financial investors (who borrow heavily to subscribe), investment bankers, companies, lead managers, etc – all are happy. While the party is good, no one complains. However, given the size and the quantum of the issues coming in, the failure of even one issue to open at above costs will make the whole set-up collapse. Financiers will cry foul, as will other investors and markets will go into a tizzy. The regulator, too, normally reacts weirdly to such a situation. Despite knowing about the huge leverage being adopted in new issues, it will conveniently turn a blind eye to such over-leverage techniques, which effectively keep genuine investors out.

One solution, according to Deven Choksey, founder, KR Choksey, is to have all trades, IPOs as well as secondary markets, to be settled through custodians. “Currently, everything is settled through brokers, which makes the system vulnerable,” he explains. “Only large trades of institutions are settled through custodians, which are heavily capitalised banks. The same system is required to be followed in the case of other investors also, given the huge amount of money sloshing around. In most advanced countries, the settlement is done through custodians, which ensures smooth functioning of the market. The broker’s job is to advise and transact orders for clients. Backroom settlement should always be done through custodians.”

The regulator is required to look into this and take proactive steps, rather than wait for an issue to fail in the market and see retail investors again going into a shell and turning away from the markets, before reacting.

 As of now, there is heightened interest amongst investors for the new issues. Apart from the tech-based platform companies, traditional manufacturing companies are also planning to raise capital in a market that is touching new highs regularly. After making a high of 53,129 on 6 July, the market is now taking a pause. Some feel that retail money will flow out from the secondary market to the primary markets, with investors trying their luck in the new issue market. While FIIs have been net sellers in April, May, June and July, even the DIIs have been net sellers in June. It is only the retail investors who have been holding steady and buoying up the markets.

  • Shah: new-age companies will see good response

    Shah: new-age companies will see good response

Concrete offers 

Nuvoco Vistas Corporation, which is planning to raise Rs5,000 crore, has seen a fair amount of ownership change. Originally a Tata Steel group company, its three cement plants of 11.3 million tpa capacity were taken over by Lafarge in 1999, which strengthened the company by adding Raymonds’ Chhattisgarh plant to it and further expanding its capacity at the site to three million tpa. A ready-mix division of L&T was also taken over in 2008.

Lafarge had to sell off this company, following the merger with Holcim. Nirma took over the company and changed the name to Nuvoco Vistas Corporation and further strengthened it by taking over the 8.3 million tpa plant of Emami Cement. The total capacity of Nuvoco Vistas is about 23.5 million tpa now, across six plants. It has a good presence in the eastern part of India. Of the total Rs5,000 crore, Rs1,500 crore worth of new shares will be issued, while the balance will be offer of sale by the promoters of Nirma. The issue gains importance, because cement IPOs have not come for the last seven years.

Penna Cement, another company in the sector, is planning to raise Rs1,550 crore. Starting off as a mini cement plant of 200,000 tonnes, the company has expanded its capacity to 10 million tpa and plans to grow it to 16.5 million tpa. It also has a coal-based captive power unit, with a capacity of 77 MW and a waste recovery unit.

The company has units in Andhra Pradesh, Telangana and Maharashtra, as also a grinding unit in Krishnapatnam, where it transports bulk commodities to packaging units elsewhere in India. It recently took over a cement unit in Sri Lanka. To cater to the Sri Lankan market as also its packaging units in the west and the east, it has invested in a self-discharging ship with a capacity of 25,000 tonnes.

HDFC’s subsidiary

Another large issue of about Rs10,000 crore is expected from HDB Financial Services, the subsidiary of HDFC Bank. An NBFC, this will be the fifth company from the HDFC group to go public, besides being the second NBFC. While HDFC is technically a housing finance NBFC, HDBFS will be a general NBFC.

There are also quite a few other housing finance companies that have lined up for their IPOs. Aadhar Housing Finance, a Blackstone-backed finance company, with an AUM of about Rs61,000 crore, is planning to tap the market for Rs7,300 core. This includes Rs1,500 crore of new issue of shares and Rs5,800 crore worth of disinvestment by Blackstone. 

The finance sector has a few companies making plans to raise capital as well. Fincare Small Bank is planning to raise Rs1,300 crore. Muthoot Fincorp, part of the Papachan Muthoot group, is planning an issue of R500 crore. ESAF Small Finance targets Rs1,000 crore, while Arohan Financial Services looks for Rs1,800 crore.

  • Choksey: custodians should do settlements; Photo: Sanjay Borade

    Choksey: custodians should do settlements; Photo: Sanjay Borade

PE investors’ exit

The heightened interest of investors in IPOs has also seen several private equity firms seeking divestment in their investee company through the capital market. Aptus Value Home Finance, which has a host of private equity companies (including Westbridge corporation, Sequoia Capital and Malabar Investments) backing it, is planning to raise Rs2,600-3,000 crore. Cartrade, which is backed by Temasek and Warburg Pincus, is planning to raise Rs2,000 crore. 

Meanwhile, Kedara Capital Alternative Investments will be seeking a partial exit from the Hyderabad-based Vijaya Diagnostics. The issue, expected to be about Rs400 crore, is purely ‘offer for sale’, as no new capital is being raised. Kedara had taken a 40 per cent stake in 2016.

A host of pharma and life-science companies are also planning to tap the capital markets. Glenmark, one of the most popular ones, plans to tap the market for Rs1,500-1,700 crore. Mumbai-based Supriya Life-sciences, started in 1987 by Satish Wagh, a first-generation promoter, has more than 60 APIs in its basket and caters to over 105 countries. This company is planning an IPO of Rs1,200 crore.

The specialty chemicals and commodity chemicals sector, which have been in the news due to heightened demand and soaring prices, has also seen companies looking at tapping the market. Chemplast Sanmar, which was delisted in 2012, is planning to list again. The company and its subsidiary are among the largest specialty chemical makers.

Its specialty, PVC resin, is largely imported and Chemplast Sanmar caters to 45 per cent of the total demand in India. It plans to raise Rs3,500 crore through an offer for sale and issue of shares. A part, Rs1,238 crore of the funds raised, will be used for deleveraging. The rest will be used for general corporate purposes.

Among the marquee IPOs lined up are Go Airlines, planning to raise Rs3,600 crore. The proposal has been delayed, following objections raised by SEBI pertaining to its promoter group. Aditya Birla Sunlife Mutual Fund is planning to raise funds too. So is Sansera Engineering, a Karnataka-based company, engaged in precision auto machined parts as also forging. A profit-making company, Sansera reported a PAT of Rs98 crore for 2020-21 on a topline of Rs1,361 crore.

Given the sentiments amongst investors, one can expect more companies to join the bandwagon, either to provide exit to private investors or to seek listing to gain respectability. In this context, the government also needs to get its act together and look at issues beyond LIC. Many companies have, according to merchant bankers, already started making preparations for filing the draft prospectus. 

There could be a possible lull after the LIC issue, when the government can come out with other issues, perhaps in the last quarter January-March 2022, to leverage heightened investor interest.

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