IPO-bound firms may delay issues, cut prices

About 60 companies have received Sebi approval to raise over Rs 63,000 crore

Updated : Jan 14, 2019, 05:05 AM IST

IPO-bound firms may delay issues, cut prices

Despite the market regulator's approval, a chunk of companies waiting to float their initial public offer may choose to stay away from the market this year or may have to lower their prices.

As far as data available with Prime Database, around 60 companies, which have received the Securities and Exchange Board of India's (Sebi) approval to raise over Rs 63,000 crore, are yet to come up with their initial public offers.

In calender 2018, a total of 24 companies went ahead with their initial public offerings as against 71 proposals approved by Sebi. Cumulatively, they raised around Rs 30,959 crore compared with Rs 67,147 crore raised by 36 companies in 2017 against 46 IPO proposals which were cleared by Sebi.

The first quarter of 2018 alone saw 14 of the 24 public issues raising around Rs 18,591.73 crore.

According to analysts, the companies which have received IPO approvals may have to wait for the markets to revive, or else they may have to lower their price/earnings (P/E) multiples if they are still looking to hit the market shortly.

According to an analyst, the current market conditions have taken the shine out of IPOs with around 60% of stocks listed last year trading below their issue price. He said the government's plans to raise money through IPOs of government companies may not evince investor interest, since most PSU stocks have failed to garner good returns.

As on December 31, at least 14 of the 24 public issues in 2018 were trading below their issue price, while at least 18 of the 36 stocks listed in 2017 were trading below their issue price.

Sanjay Mookim, director, global research, DSP Merrill Lynch said the market has relatively become weaker, but many promoters are expecting higher P/E multiples, in line with what some of their peers may have earlier received. They are not ready to sell at lower multiples than what they have been used to, hence we are seeing the IPO market drying up, he said.

"I don't see that coming back and promoters have to get used to selling at a lower price if they want to raise money," Mookim said. However, he said that most companies are not in need of capital.

According to him, the central government would try to come up with more offers as part of the disinvestment target, since it is in need of capital. Recently, the government has announced that six public sector units will come up with IPOs.

"If you look at the PSU stocks that the government owns, and if we assume that the government will only divest, holding 51% stake, then the saleable surplus of all PSU stocks of the government, ex-banks, is only Rs 2.5 lakh crore. Of this, 40-45% is in four big stocks, and if the government is not able to sell stakes in these stocks, it is difficult to be able meet Rs 80,000 crore disinvestment target," Mookim said.

Mahesh Patil, CIO-equity, Aditya Birla Sun Life Mutual Fund, said IPOs are not going to be easy this year as the money flow is not going to be abundant. If the pricing is right and the company is good, there will still be demand, he said.