3Ps OF IPO - PRICE, PRICE AND PRICE
By Ruma Dubey
Bharti Infratel, yesterday, was subscribed 0.35 times, of which 0.81 time subscription was from QIBs and Retail investors were very low at 0.03 times. The issue closes tomorrow.
Take the case of PC Jewellers, the issue closed yesterday and was subscribed 6.85 times, of which the giant portion, 18.12 times was subscribed by Non Institutional Investors (NII) and QIB to the tune of 7.33 times. Retail investors were very low at 1.68 times.
The IPO of CARE closed on the 11th of Dec and it was subscribed 40.98 times, again, the major chunk of subscription coming from NIIs and QIB subscription was 45.8 times. Retail investor was at 6.18 times.
NMDC closed with a thumping success yesterday and it was oversubscribed 1.73 times, garnering Rs.6000 crore. Major chunk of the investment was made by FIIs, followed closely on the heels by LIC. And for a change, retail participation has been good, with almost 10% of the bids coming in from retail investors. This is more than what the other private sector IPOs have managed to get from retailers.
The inference drawn from these recent IPOs is that yes, there are issues coming but retail investors are not really enticed. They remain mere spectators. And why? One and only one reason – pricing. Somehow NMDC managed to get the pricing right but the others, as per majority of investors have priced their offering high. And past experience has shown that they get to pick up quality stocks much below the IPO price post listing. Majority of the IPOs which raised money recently are trading below the IPO price. Tara Jewels, which got listed on 6th Dec, had issued shares at Rs.230, and is today quoted much below this price.
Somehow, getting the pricing right, even in this age of everything going hi-tech remains elusive. Even Facebook, went on to issue its shares at a very high price and it has been facing the brunt of it. And this was for a company which had so much brand equity and high fancy. And these are precisely the two factors on which companies tend to overcharge. So the boon becomes the curse for investors.
L&T Finance is one company which priced its issue right despite the high amount of fancy it enjoys. It issued shares at Rs.52 and though it languished at lower levels for some time, it is today at a 76% premium to the IPO price.
But that is precisely the point being made – even if pricing is sometimes right, like in the case of L&T Finance, because the stock price dipped and stayed below the issue price for so long, many investors got in at prices much lower than the IPO price. Thus the perception now is to wait and watch the IPO as you will get the opportunity to buy the stock below the offer price.
For now, the confidence of retail investor is zilch when it comes to IPOs. They have all burnt their fingers so badly that they do not want to even go anywhere near IPOs, even if it is a quality issue and pricing is ok. Investors are just not able to shake off the feeling that all promoters are greedy and out to swindle them.
Confidence can be built only over a period of time. A few quality issues, priced right, leaving some money on the table for the investor to make will restore the faith back. But will promoters agree to price lower so that investors can gain? No, they would rather postpone their IPOs. Between 2009 and October 2012, 134 companies filed DRHPs (draft red herring prospectus) with SEBI to raise around Rs.60,000 crore but all of them, either withdrew the IPO or allowed the SEBI nod to lapse. This includes big names like Reid & Taylor, Tata Autocomp, Micromax, Embassy Property, Joyalukkas, Lokmat Media and VRL Logistics. So companies do not want to go ahead with their IPOs because they do not want to price their IPO low and investors do not want issues who price their IPOs high.
And the SEBI chief is worried and plans to get to the root cause of this problem. And he has nailed the problem on the head, saying, “If 95-100% of the issues are trading below the issue price, something is wrong with the pricing.”