Photo: Pradeep Gaur/Mint
Photo: Pradeep Gaur/Mint

E-commerce firms, coffee chains set to change India’s IPO landscape

The share sales will give an opportunity to small investors to buy into the same stories in which venture capital and PE firms are pumping in billions of dollars

Mumbai: A homegrown e-commerce company, the country’s largest coffee chain, a payment services provider, and a contract research hotshop—these are some of the companies in which Indian stock market investors can now look forward to owning shares, a development that some analysts say reflects the changing landscape of Indian business.

The share sales will also give an opportunity to small investors to buy into the same stories and business models in which venture capital and private equity firms are pumping in billions of dollars.

The pipeline of share sales (all companies have filed documents with the stock market regulator) is, by itself, illuminating.

Infibeam Incorporation Ltd: E-commerce

Coffee Day Enterprises Ltd: Coffee chains/food retail

AGS Transact Technologies Ltd: Payment services

Syngene International Ltd: Contract research

The significance of this line-up isn’t lost on analysts.

“We are going through two cycles. One is the journey from third-world country to a second-world country which is resulting in newer business models coming for IPOs (initial public offerings). Second is stock market cycle; and we are two years into a bull market cycle and are seeing the first tranche of IPOs making their appearance," said Saurabh Mukherjea, chief executive officer of institutional equities at Ambit Capital.

Both trends bode well for the markets.

And, of course, for the companies, according to experts.

“When you try to sell a new business model it creates more interest and the possibility of that issue garnering more money is greater than a firm which has a traditional model," said Arun Kejriwal, founder of Kejriwal Research and Investments Services Pvt. Ltd.

According to Prithvi Haldea, chairman at Prime Database group, investors will look at these new economy companies as seriously as they are looking at the old economy companies. “There is a significant risk associated with new entrants but there is also a significant upside," he added.

Just Dial Ltd, which launched its IPO in May 2013, is an example. The firm, which provides local information search services, saw its share sale subscribed almost 12 times. In April 2014, Wonderla Holidays Ltd, which runs an amusement park, saw its share sale subscribed almost 38 times.

Both years were bad from the initial share sales perspective with only three and five companies, respectively, turning up on Dalal Street to raise funds.

This year, eight companies have made IPOs.

The list includes another company that runs an amusement park, Adlabs Entertainment Ltd, and UFO Moviez India Ltd, the market leader in digital satellite driven movie distribution business.

Share sales by new companies in new businesses could also add depth to the Indian stock markets.

“The more choice an investor has in terms of riding a particular growth opportunity, the better it is. Otherwise, investor choice becomes concentrated," said Pankaj Pandey, head of research at ICICIdirect.com, adding that there are investors who do have an appetite for new-age firms.

“The number of exchange-traded companies continues to be few and therefore it is always welcome to have more companies list, whether they are from the traditional sectors or new sectors," said Haldea of Prime Database.

It is not that Indian markets have not seen such a trend before. In the first half of the previous decade, several IT services, telecommunications, pharma and media firms came to the markets.

“People were initially hesitant with the technology sector but companies have proved the business models in terms of sustainable earnings and so there is a fair amount of comfort for investors," said Pandey of ICICIdirect.com.

Still, there need to be more such share sales before the profile of Indian markets begins to change.

Mukherjea of Ambit said the IPOs in the pipeline are fairly small ones and that the supply of new share sales is due to the lack of meaningful IPOs for almost five years.

But if the bull run continues, there will be more such IPOs for sure, he added.

There are enough private equity investors waiting to exit their investments in new-age companies, he said.

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