Mumbai: Infibeam Incorporation Ltd, the first Indian e-commerce firm to launch an initial public offering (IPO), saw its issue being subscribed 0.21 times on the opening day of the share sale on Monday.

According to data from BSE, the qualified institutional buyers portion was subscribed 0.22 times, with all the bids coming in from foreign institutional investors, while the retail portion was subscribed 0.17 times.

The Ahmedabad-based e-tailer, which aims to raise 450 crore from the share sale, has already run into problems with two of the four domestic investment banks opting out on concerns over pricing and timing of the issue.

Kotak Mahindra Capital and ICICI Securities withdrew as bankers to the issue. SBI Capital Markets Ltd and Elara Capital (India) Pvt. Ltd are the two bankers managing the offer currently. The issue closes on Wednesday.

“...the exit of two investment bankers just before RHP (red herring prospectus) calls for concern. It will be a challenge for Infibeam to compete with the existing e-commerce giants," IIFL Holdings said in a 17 March note.

There were no anchor investors to the issue, and market participants said that it was again to do with the pricing.

Market regulator Securities and Exchange Board of India (Sebi) introduced the concept of anchor investors in a public issue in 2009 with a view to having a set of committed investors anchoring a transaction notwithstanding the market conditions.

According to clause 10(h) of the Sebi ICDR (Issue of Capital and Disclosure Requirement) Rules, if the price fixed as a result of book-building is higher than the price at which the allocation is made to an anchor investor, he shall bring in the additional amount.

Whereas, if the price fixed as a result of book-building is lower than the price at which the allocation is made to an anchor investor, the excess amount shall not be refunded to the anchor investor, the clause adds.

Infibeam has fixed a price band of 360-432 per share for its public offer, and investors deem it to be expensive.

An anchor book, also known as anchor allotment, is that portion of the IPO that bankers can allot to institutional investors on a discretionary basis. Anchor-book subscription opens a day before the launch of a public issue and acts as an indicator of institutional investors’ confidence in the issue.

In an email response, Infibeam said the company, in its discretion and in consultation with its book-running lead managers, has decided against having anchor investors in the issue.

The issue hits the markets when the secondary market has just about settled and is looking up after a weak start this year, but there is uncertainty whether the current rally is here to stay.

The grey market activity was lacklustre, with hardly any volumes. It was being quoted at a premium of 28 per share, but with more sellers than buyers, dealers said the issue could slip to a discount by Tuesday.

Earlier in the day, #ProudofInfibeam was trending on social-networking website Twitter and a news article by online portal Medium’s Factor Daily pointed out that a digital media agency has been paying social media influencers to promote Infibeam. Mint also wrote to a few people who were tweeting the hashtag, asking if the campaign was paid for, but they did not respond.

Many of these Twitter users seem to be heavily engaged in promoting other trending hashtags too, which also appeared to be promotional in nature.

When contacted, Infibeam clarified that it has not directly or indirectly paid to promote the campaign on Twitter.

There were strong concerns on the pricing of the issue and it was not likely to attract huge investor interest.

The issue wasn’t rated by many brokerages, which was a bit unusual, and senior officials at two brokerage firms said they did not have a rating as they believed it was expensive.

“Notably, there were some instances in recent times, wherein valuations of e-commerce companies were either marked down in the unlisted space or have corrected in the global listed space. However, Infibeam has not compromised on its valuations," IIFL analysts Saptarshi Mukherjee and Amod Joshi said in the note, rating the issue an “avoid".

Also, the e-commerce sector, which is fiercely competitive, is facing several headwinds, including funding, and companies are facing severe stress on valuations.

“Furthermore, to raise additional funds in the future, the company may go in for equity dilution or increase its debt. This can be a cause of concern for investors. In addition, future cash flow generated from the high margin service business could be utilized by the e-commerce business," IIFL analysts added.

In a note on 19 March, Angel Broking pointed out that Infibeam’s e-retail business has a model similar to Flipkart and Snapdeal, but is significantly smaller than the two dominant players which have strong backing from private equity players.

Its other business, that is, Buildabazaar, which provides services to enable merchants to set up online storefronts, is also smaller in revenue terms to global firms like Shopify.com, the note said, and added that even if the former does gain a dominant position in India, it is insufficient to justify the valuation.

“Considering this, we believe that the EV (enterprise value)/sales multiple of 4.3x-5.2x demanded by the company is steep. Given that the company is still evolving, has an unproven profitability track record and the expensive valuation, we have a neutral recommendation on the issue," Angel Broking said in the note.

Infibeam, founded by former Amazon executive Vishal Mehta, turned profitable in the first six months of 2015-16. The company posted a revenue of 171.3 crore and a net profit of 6.6 crore for the six months ended September 2015. It reported a revenue of 288.2 crore at a net loss of 9.8 crore for the year ended 31 March 2015.

The firm will use the IPO proceeds to set up a cloud data centre and 75 logistics centres, it said in its prospectus.

After the stock exchange listing, Infibeam will be valued at 2,250 crore, Mehta had said at a press conference earlier this month.

Ankit Doshi contributed to this story.

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