IPO - ITS ALL ABOUT PRICE, PRICE AND PRICE.
By Ruma Dubey
Dr.Devi Prasad Shetty is a cardiac surgeon with a heart. That is the kind of reputation and goodwill he enjoys across India. Thus there was a lot of excitement when one knew that his hospital – Narayana Hrudayalaya was coming out with an IPO. Most retail investors were excited about this issue and were hoping that they would get to own a small part of this hospital.
The issue closes today and till today mid-morning had received bids for only 30% of the issue size. FIIs had bid for 0.46 times their quota and retail investors 0.32 times. It has priced the IPO at a price band of Rs.245-250/share. Our take on the IPO in the New Issue Analysis section, “While their medical treatments may be affordable, sadly, one cannot say that for the issue pricing of Narayana Hrudayala. Hence, on pure fundamental grounds, the issue can be given a miss.” As is the trend seen these days, at the last moment, this IPO too will sail through before the end of the day.
Prior to this, there was another “medical” IPO – Dr.Lal Path Labs. It was subscribed 33.41 times of which lion’s share came from QIB, subscribing 63.56 times and non-institutional investors at 61.82 times. Retail individual investors was subscribed 4.24 times. This IPO had a price band of Rs.540-550.
Alkem Lab is expected to get listed sometime before 29th Dec and its IPO received an overwhelming response too. It was subscribed 44.23 times with QIBs leading as usual at 57 times, HNIs at a jaw dropping 129 times and retail investors at 2.9 times. This IPO was priced at the upper range of the band at Rs.1050.
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.
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 25% 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 not too high 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. Plus there is now the added worry of Anchor Investors – most IPOs have over 10 and they are issued stocks much below the IPO price. The worry remains that their exit will bring down the price.
The IPO markets are mostly certainly doing much better than what they were doing earlier. In 2014, there were 6 IPOs and they managed to collect Rs.1261 crore. Prior to that, in 2013, there were just 3 IPOs and they garnered Rs.1284 crore. As against this, in this fiscal, till date, 16 IPOs have collected Rs.7500 crore. And this is not the end…there are so many more waiting and not just small time issues, we are going to see issues from some big names too.
The pipeline - Matrix Cellular has already got SEBI’s approval for its Rs.500 crore issue. Ratnakar Bank is planning on a Rs.1200 crore but its issue is being held up due to past ghosts haunting its present. L&T Infotech is an IPO eagerly awaited where parent company, L&T will dilute 11% of its stake. It recently filed its DRHP with SEBI – on 29th Sept. Another big brand name is VLCC – it filed its DRHP on 24th Sept and it hopes to raise over Rs.500 crore. One more well-known name is Bharat Matrimony which plans to raise Rs.350 crore. Microfinance institution Equitas Holdings filed its DRHP yesterday, 20th Oct and it hopes to raise Rs.1200 crore. Parag Milk Foods, which sells products under the brand name of ‘Gowardhan’ filed its DRHP on 1st Oct and it aims to raise around Rs.1000 crore. Antivirus software maker Quickheal Technology is also joining the bandwagon and it plans to raise Rs.1200 crore. Bangalore-based HealthCare Global Enterprises Ltd (HCG), one of the largest cancer treatment hospital chains in the country is also going to try its luck in the IPO market, hoping to raise Rs.600-700 crore.
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?
And the SEBI chief said it right, “If 95-100% of the issues are trading below the issue price, something is wrong with the pricing.”