Bangalore: When a brutal 2008 ended after wiping out half the money invested in equities, no Indian company would have dared to consider a public share sale to raise cash. Almost five months later, after a brilliant surge in shares and a decisive poll verdict, companies are still cautious.
Firms that put off their listing plans last year because of investor apathy are waiting for someone else to test the waters first. So are nearly two dozen other companies that have applied for or have received approvals to raise money from initial public offerings, or IPOs.
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As global markets plunged in 2008, at least 60 Indian companies deferred their share sale plans after filing offer documents with the capital market regulator, the Securities and Exchange Board of India, or Sebi.
According to a list compiled by SMC Capitals Ltd, the merchant banking arm of New Delhi-based financial services house SMC Global Securities Ltd , 18 companies have clearances from Sebi for IPOs, while six are awaiting approval.
Among the 18 companies that have Sebi approval are National Hydroelectric Power Corp. Ltd (NHPC), Oil India Ltd, Pipavav Shipyard Ltd and Future Ventures India Ltd, while those awaiting approvals include Adani Power Ltd and Pradip Overseas Ltd.
Financial information firm Thomson Reuters Corp. expects 73 companies to launch IPOs in 2009, raising $17.4 billion (Rs82,128 crore).
That points not only to a sharp increase from the Rs20,600 crore mobilized from 35 IPOs in 2008, but also stronger valuations than the Rs33,800 crore raised from 89 IPOs in 2007.
The expectation may be justified. After sliding at least 52% in 2008, the Bombay Stock Exchange’s (BSE) benchmark index, Sensex, has bounced back some 44% so far this year.
“People would like to take advantage of the market this year and my assumption is that there would be many more thinking (of) and planning to raise money by going public,” said Jagannadham Thunuguntla, equity head, SMC Capitals.
The firm expects total capital mobilization of Rs7,405.38 crore from IPOs for the 18 firms that have got clearances, though the approvals do not necessarily require the firms to list their shares immediately.
“An improvement in the secondary markets as well as improvement in investor confidence makes us believe that public fund-raising will be strong this year,” said Srinivasan Subramanian, head (investment banking), Enam Securities Pvt. Ltd.
The companies, though, aren’t entirely convinced, yet.
Jay Gupta, managing director, The Loot (India) Pvt. Ltd, said his discount retail firm, which had held back plans for an IPO last year, is ready to go public anytime now. “We missed the earlier opportunity, we won’t lose it this time,” Gupta said, but added the company would wait to gauge the success of the first five IPOs this year before taking any decision.
Infinite Computer Solutions (India) Ltd, which got its Sebi approval in March, is also guarded. “Given the uncertain market conditions, we are still watching the market closely and waiting for the initial euphoria to settle so as to have a more pragmatic view on the way forward,” said Upinder Zutshi, the firm’s chief executive. Jewellery and diamond firm C Mahendra Exports Ltd, which got Sebi’s clearance for an IPO in November, plans to wait till August.
“Though the market seems to be reviving, individual investors are still holding back. To make an IPO successful, you need individual investors also. We will have a wait-and-watch policy for two to three months,” said chairman Mahendra Shah.
The only firm to list so far this year is Chennai-based Edserv Softsystems Ltd. When it went public on 2 March, its share price more than doubled to Rs137.55 from the offer price of Rs60. Since then, though, Edserv’s share price has declined 80% to close at Rs27.55 on BSE on Monday.
Another firm, Gemini Engi-Fab Ltd, withdrew its prospectus after getting Sebi’s approval earlier this year. Edserv did not respond to several calls made since Friday, while calls and emails to Gemini remained unanswered.
Share sales by state-owned NHPC and Oil India are considered particularly important in the current market.
“PSUs (public sector units) generally enjoy strong balance sheet and revenue generation models. Also, their IPOs are reasonably priced and (the) confidence level of investors is higher in them,” said SMC’s Thunuguntla.
He added that NHPC and Oil India are expected to come out with public issues in July or August.
Analysts now expect the majority mandate for the Congress-led United Progressive Alliance (UPA), sans the Communist parties, to provide more stability to the equity markets—a sentiment reflected in the record single-day rise in the Sensex on 18 May, the first trading day after the poll results were declared. The 30-stock index vaulted 17.34% to 14,284.21 points, while the broader 50-stock Nifty gained 17.74% to 4,323.15.
“Post-election verdict, there has been a fundamental change in the political and related economic risk profile of Indian (firms)...resulting (in) an increased allocation by all leading foreign investors into the Indian markets,” said Ashutosh Maheshvari, chief executive, Motilal Oswal Investment Advisors Pvt. Ltd. “Usage of this cash into secondary market would eventually lead to increase in market prices as expected, and thereby, leading to market requirement of new issuances which are priced at some discount to peer group.”
S. Ramesh, chief operating officer, Kotak Investment Banking, added: “If we see (a) significant amount of foreign money coming in, then we could see (a) higher number of issues hitting the market. We have more than one reason to be positive. With a stable government in place, we expect foreign institutional investment to increase.”
Foreign institutional investors sold a net $12.18 billion of shares in 2008, but have been net buyers of equities worth $3.19 billion so far this year.
Ramesh added: “For primary market issuances, stability in secondary markets is important. We believe that qualified institutional placements (QIPs) will be the first to hit the block and we will see the revival of the IPO market in a couple of quarters.”
Firms such as Indiabulls Real Estate Ltd, Unitech Ltd, GMR Infrastructure Ltd, Housing Development Infrastructure Ltd and Puravankara Projects Ltd, all from the cash-starved realty sector, are lining up to raise funds through QIPs, a primary market instrument through which promoters of listed entities sell shares to institutional buyers without involving retail investors.
Such placements had nearly faded away last year. Funds raised through QIPs dropped 84.05% to Rs3,700 crore in 2008, compared with Rs23,200 crore in 2007, according to Bloomberg data.
Anil Harish, a panellist with Legalpundit.com, run by Legalpundits International Service Pvt. Ltd, a legal and regulatory information service provider, argues it’s too early to say the market is reviving.
“We need to understand that those who were earlier planning to go public had different expectations. This market does not match that. Will they be willing to lower valuations?” said Harish, a director with firms such as Hotel Leela Venture Ltd, Pantaloon Retail (India) Ltd and Unitech.
Graphics by Sandeep Bhatnagar / Mint