How the tide is slowly changing for IPOs
It looks like the IPO season has finally returned in Indian markets. The year 2015 has seen, not just record fund raising through IPOs, but has also seen IPOs performing exceptionally well post listing. That trend has got reinforced with the latest listings of Alkem Laboratories and Dr. Lal Pathlabs. On Wednesday, Alkem listed at a premium of 30% while Dr. Lal Pathlabs listed at a premium of nearly 50%. What does this mean for retail appetite in IPOs?
String of marquee names…
If you look back at some of the key IPOs in 2015, what strikes you is the large proportion of IPOs that have given phenomenal returns post listing. Be it the case of VRL Logistics or Syngene or Interglobe Aviation or more recently, Dr. Lal Pathlabs and Alkem; the post listing returns have been phenomenal. Most of the companies that have come out with an IPO in 2015 are pedigreed names with an established track record. Consider some of these. Interglobe was already the largest and most profitable airline in India. Alkem is the fifth largest pharma company in India. Dr. Lal Path Labs has a history of over 5 decades in a niche space. Similarly VRL has a long history in transport and logistics while Syngene is backed by the Biocon group.
There is no wave in sight…
To understand what a wave is, one needs to look back at the previous IPO boom periods of 1995, 2000 and 2007. Back in 1995 any NBFC without even a proper business model could raise money in the IPO market. Later in 1999, it was the turn of technology to take over. Companies with business models unrelated to technology and IT changed their names to give an IT flavor. This enabled these companies to raise funds through an IPO at lofty valuations. Later in 2007, most companies changed their names to include aspects of real estate or materials in their name. Most of these also-rans eventually crumbled taking the investor money along with them. The good news is that this IPO boom of 2015 has not been driven by any of these kinds of short-lived sentiments. At least none is visible at this point of time!
Pricing has been tempered…
Apparently, the lead managers and the issuers are a lot more conservative in pricing their IPOs this time around. They have learnt the lessons of the past where aggressive pricing did not leave much on the table. The one issue that was aggressively priced, Café Coffee Day, had a disastrous post-listing performance. That should be lesson enough. This way, institutions, retail and the HNIs make money.
The real test will, of course, come when Greenfield projects enter the market. Today, many of the IPOs are offers for sale. The Greenfield issues will decide how sustainable is this IPO boom? ©
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