Merchant bankers are keeping their fingers crossed as the country’s largest-ever initial public offering (IPO) in the real estate sector opens for subscription on Monday.
MUMBAI: Merchant bankers are keeping their fingers crossed as the country’s largest-ever initial public offering (IPO) in the real estate sector opens for subscription on Monday. DLF’s mega issue of Rs 9,625 crore (assuming the issue is priced at the upper end of its Rs 500-550 price band) faces an uphill task in wooing retail investors, but insiders say the big push on Day 1 could come from institutional investors.
“Most big IPOs have been sluggish on the retail side. Investors sit on the fence on the first day looking at how the market moves and estimated levels of subscription. So, oversubscription from retail investors is not possible on the first day. But the merchant bankers will try and get big institutional money on the first day so that pulling the other side becomes easier,” says Shailesh Kanani, research analyst with Angel Broking.
Ambareesh Baliga, vice-president of Karvy Stock Broking, says: “The IPO is unlikely to get oversubscribed on the first day, as it is a very large issue and there are still concerns about the real estate sector. The issue will, however, sail through, even if it is at the lower end of the price spectrum.”
To be sure, DLF’s advertising campaign, which began last year and continued sporadically before kicking off again a month or two back, has built up a good retail image. “The lay investor thinks DLF has built the whole of Gurgaon,” says one analyst, implying that this brand image should be able to pull in some retail subscriptions. But the informed opinion is that getting the retail portion fully subscribed will take some doing.
At the minimum application amount of 10 shares of Rs 2 each, the 35% retail quota will need as much as 60 lakh applications - a daunting task, says Arun Kejriwal, who heads the Kejriwal Research and Investments.
Further, Shoaib Bhati, a research analyst with brokerage firm Finquest, says: “If the company is looking for more than Rs 3,000 crore from retail investors, it will have to wait till June 14, when the issue closes. But oversubscription still looks difficult,”
The last jumbo issue, that of Cairn India, also hit a block on the road to retail subscriptions. In fact, the overall subscription to the Rs 5,260-crore Cairn IPO was reportedly below the amount sought.
But last-minute pyrotechnics by the issue managers managed to pull up the subscriptions to 1.14 times the issue amount.
In contrast, other bigger floats such as NTPC (Rs 5,368.15 crore), TCS (Rs 4,713.47 crore), Reliance Petroleum (Rs 2,700 crore) and Idea Cellular (Rs 2,443.25 crore) sailed through smoothly. NTPC saw 2.73 times subscription, TCS six times and Reliance Petroleum 4.70 times, while Idea Cellular was oversubscribed 48 times.
A lot is riding on the DLF issue. Analysts say that if the first-day subscription doesn’t look wholesome, there could be an immediate impact on the secondary market, and realty stocks, in particular. On the other hand, Day 1 oversubscription would give a push to real estate stocks like Unitech, predicts Pankaj Valia, vice-president, First Global Stock Broking.
As Bhati says, “The real estate market has been volatile for quite some time now. Unitech, DLF’s biggest rival, which reached its 52-week high of Rs. 623.60, is now trading at Rs 505.10. Even the recently-listed real estate companies like Akruti Nirman and Ansal Properties are trading in the red. We believe investors will book their losses and instead put their money in the DLF IPO,” he adds.
While DLF’s performance could hit market sentiment, a bad market on Monday could also impact DLF’s IPO, says K Venkitesh, who is the head of channel sales and distribution at Geojit Financial Services.
But any money intended for investment in the DLF IPO has already been sucked out of the system and can do no more damage to the secondary market, says Ajay Pandey, equity analyst with Mehta Securities. Moreover, there are options wherein retail investors can make partial payment to the tune of Rs 150 per share before allotment and the balance after allotment. However, trading in such shares will happen only a month later, subjecting investors to market risks. They will not have the option to exit on listing.
The DLF issue will be followed by that of ICICI Bank and Central Bank of India. The tone for the latter’s success will beset by DLF.
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