Choppy markets set to extend IPO market drought

Despite mobile marketing company Affle (India) coming up its initial public offer worth Rs 459 crore next week, the long drought in the IPO market may not end soon.

Since the beginning of 2019, the IPO market has remained lacklustre with only eight companies opting for the route and raising a total of about Rs 6,700 crore.

On the other, the year 2018 till July witnessed around 18 companies listing on the bourses after raising nearly Rs 27,377 crore, according to data sourced from Prime Database.

According to an IPO expert, a number of companies has received the approval of the market regulators last year itself but did not go ahead with their IPO plans, as they expected that the market would revive after elections. However, the markets have remained choppy even after elections.

The market has lost around Rs 6.89 lakh crore since May 23, when the new government came to power.

According to data available with Prime Database, around 53 companies have received Sebi approval since last year with combined fundraising plans of Rs 42,437 crore. Around 18 companies received Sebi approval this year itself.

However, not too many companies are expected to test the waters now.

According to AK Prabhakar, head – research, IDBI Capital, promoters testing IPO markets at this point of time may be doing it out of necessity as they have to provide exits to PE investors at an attractive valuation.

"When good stocks are available at a PE of 8 or 10 times, why pay an expensive valuation for an IPO. There are "tried and trusted" stocks available at a good valuation now," he said.

The IPO expert said only a couple of more companies are likely to come up with their maiden public issue in the next 2-3 months. According to him, AGS Technologies may go public in the next two months, after two earlier attempts. The company is looking to raise around Rs 1,000 crore, and may have restarted work on IPO plans, the expert said.

He said Mazagon Dock Shipbuilders is also likely to launch its IPO, as part of the government disinvestment target. According to him, PSU companies are good for investors looking for dividend yields.

Pranav Haldea, managing director, Prime Database group, said, "There is a huge pipeline that exists which have got Sebi approval. But given the overall sentiments, I don't foresee a flurry of activity in the IPO market in the next few months. The current market condition does not give out the right signals for the promoters to come up with IPOs."According to him, a lot of the filings took place when the broader markets were doing well and there were expectations that the companies would be able to launch their IPOs.

"But post-IL&FS fiasco, the markets have been volatile. I think some of those who got Sebi approvals last year would rather let the approvals lapse than go ahead with the launch."

Usually, the validity of the Sebi approval to launch an IPO is one year since the date of receiving of the approval.

Most of the companies announcing their maiden public issue have only a small component as fresh capital while the majority of the issue is offer for sale.

Haldea also said the track record of this government in PSU IPOs has been far better than any of the previous governments, and expects the trend to continue despite a volatile market.

"In this case, even if the valuation isn't ideal, it isn't much of a concern for the promoter being the government. We hope the government will take a lead and will continue with its divestment programme," Haldea said.

Last month, IndiaMART InterMESH, an online portal for business products and services, launched its Rs 475 crore public issue, which was subscribed 36 times. Among the eight companies listed this year so far, the current market prices of two companies are only below their issue and listing price. However, none of the IPOs was a big-ticket public offer, exceeding Rs 2,000 crore.