IPO-bound firms cannot take pricing for granted

Six issues have hit the market in 2016 and the coming months will see many more

‘Make hay while the sun shines,’ goes an old saying. And, the primary market has witnessed it in the last few months. The flurry of companies hitting the capital market with their initial public offers (IPOs) in the recent past has encouraged many unlisted entities to go public, expecting the same strong response from investors. But the institutional response to some of the recent IPOs has made it clear that quality and pricing of the issue still matter even as companies look to benefit from the strong trend in the primary market.

The IPO of Infibeam Incorporation, which was touted as the first e-commerce entity to go public in India, closed on Wednesday and the institutional portion of the offer remained undersubscribed.

According to data on the website of the National Stock Exchange (NSE), the institutional portion was subscribed 0.86 times even as the overall issue was subscribed 1.11 times.

Incidentally, Infibeam is the first IPO of the current calendar year that saw its institutional portion not being fully subscribed.

Similarly, the institutional portion of Bharat Wire Ropes IPO that closed on Tuesday just about managed to get fully subscribed 1.01 times.

Interestingly, both the IPOs saw the rest of the segments — non-institutional and retail — getting fully subscribed even as institutional investors proved to be a tough nut to crack.

Investment bankers say that this could serve as an alarm bell for companies that are looking to launch their IPOs in the near future as they would need to be more cautious with pricing and valuations of the offer.

“It is quite common for companies to try and take advantage of an overall positive wave in the primary market. But the recent instances showed that investors are not going to gobble up whatever is offered to them. Institutional investors are an informed lot and companies need to respect that,” said an investment banker who worked on one of the recent IPOs.

A tepid response from institutional investors is often looked upon as a sign of weak fundamentals and low prospects post listing though there have been exceptions as well in the past.

Some of the other IPOs that hit the market in 2016 saw a strong response from all categories of investors, including institutional that comprises foreign institutional investors, mutual funds, insurance companies and banks among others.

The IPO of TeamLease Services saw its institutional portion getting subscribed nearly 27 times.

Both Healthcare Global Enterprises and Precision Camshafts saw the segment being subscribed more than two times each.

There have been a total of six IPOs launched in 2016 and the coming months will see many companies launch their public issues.

The overall IPO pipeline looks strong as data from PRIME Database, a primary market tracker, shows that there are more than 25 companies that are ready with the regulatory approval to come out with their public issues.

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Printable version | Feb 24, 2020 5:41:47 PM |

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