Four of five IPOs last year are trading above issue prices; experts see increase in number of issues as more firms are compliant with profit threshold norm and several PE firms are looking to exit
2014 saw only a handful mid-sized initial public offers (IPOs), but that did not stop the year from turning out to be a favourable one for the primary market.
Four out of the five IPOs that hit the market last year saw jump in their prices.
In 2014, a total Rs 1,467.78 crore was raised from IPOs as compared with Rs 1,618.94 crore in the previous year.
Experts said with economy booming and stable government at the Centre, the IPO market could witness more inflows over the previous year.
Among the five companies, all unique in their nature and offering, which entered the market in 2014, Wonderla Holidays grew 161% from its issue price of Rs 125 to reach Rs 326.7 as on January 9. On the other hand, the loser among them was Monte Carlo Fashions, which fell 21.1% from its issue price.
Pushkaraj Gumaste, managing director, corporate & investment banking division, Barclays Bank Plc, India, said, "The current valuations of these stocks are relative and depend on the time they got listed."
He said IPO pricing is a function of various factors, mainly peer group pricing, global sectoral valuations and earnings of the company in comparison to its rivals.
Prithvi Haldea, chairman of Prime Database group, said, "IPOs require a stable or a buoyant market, and not a volatile or a declining market."
The market saw a subdued response in the last four years owing to a stagnating economy. Gumaste said that IPO listing is for growth capital. "GDP growth slumped from a high of 9% to 5% and the market sentiment was also not encouraging."
The last four years saw no big names entering the market apart from Bharti Infratel, which got listed in December 2012 and L&T Finance holdings which hit the bourses in July 2011.
Haldea said most companies are waiting for revival in the economy to hit the IPO market.
One more deterrent for companies hoping to enter the IPO market was the Sebi order in 2012 allowing only those companies having a profit of more than Rs 15 crore for last three years to hit the primary market. This clause need not be fulfilled by companies provided 75% of their issue is subscribed by institutional investors.
Haldea said, "Most companies will be compliant of the Rs 15 crore requirement in 2015, and also many private equity funds will be looking for an exit."
G Chokkalingam, founder and managing director of Equinomics Research and Advisory Pvt Ltd, said, "IPO is a one-time effort for companies to attract good price for their stocks, thus they wait for their earnings to improve before arriving in the market."
The second half of 2015 will be good for the markets as the economy is expected to turnaround with the government pushing for reforms and the industrial environment improving. Experts said believe that the quality of the IPOs will be much better this year but the pricing will be determined by the demand in the primary market.
The triggers that will help give a positive push to the primary market are coal and spectrum auctions, budget and the conversion of the recently promulgated ordinances into Bill.
A few big names that are in the IPO pipeline are Cafe Coffee Day (CCD), IndiGo Airlines, Snapdeal and Videocon D2H, said i-bankers.
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