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Business News/ Opinion / Online-views/  Future Capital IPO oversold 133 times
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Future Capital IPO oversold 133 times

Future Capital IPO oversold 133 times

Future Group chief executive Kishore BiyaniPremium

Future Group chief executive Kishore Biyani

Even as the Sensex has fallen 860 points in the last two days, Indian investors seem to see a bright future in Future Capital Holdings Ltd as its initial public offering was oversubscribed by nearly 133 times by Wednesday, becoming the third most subscribed IPO over the past year.

Future Group chief executive Kishore Biyani

In 2007, 105 public offerings came to the market, raising Rs39,387.72 crore. The total value of public issues in 2008 could be as high as Rs75,000 crore, according to New Delhi-based Prime Database, a primary market data provider.

“If the secondary market does not become extremely volatile, we are expecting 150-175 IPOs to collectively raise Rs60,000 crore in 2008. There could be another Rs15,000 crore worth of follow-on public issues," says Prithvi Haldea, chief executive of Prime Database.

The demand for Future Capital’s Rs490 crore offer was only outstripped by two other IPOs in the past year—Religare Enterprises Ltd, which got 159 times more bids, and Everonn Systems India Ltd, which got 145 times more bids than shares available.

The scramble for Future Capital means that the stock will list at the higher end of the Rs700-765 a share price band. The company’s promoters are reducing their stake in the company by 10.16% for the issue, which will put Future Capital’s market valuation at about Rs4,900 crore.

Even as Future Capital closed, the mega offer from Reliance Power Ltd, the largest IPO in Indian history at Rs11,790 crore, was more than 14 times subscribed on Wednesday, the second day of the offer.

“Most issues are doing well, particularly if they are backed by the pedigree of a management like Reliance Power or Future Capital do," explains Harendra Kumar, head of research at ICICI Direct, an onliine brokerage.

Both Future Capital (retail and real estate) and Reliance Power (energy) are in two so-called sunrise sectors in India where deep-pocketed companies are making large inroads and sparking huge investor appetite along the way.

Future Capital is the financial arm of the Future Group, which is the parent of India’s largest listed retailer, Pantaloon Retail India Ltd. It has a $80 million domestic fund, the Kshitij fund, which is developing 11 malls; a $350 million Horizon fund, which is making at least four mixed-use townships; a $400 million private equity fund that invests in consumer brands and businesses.

It also runs a consumer durables business, Future Money, through which it gives loans to Pantaloon and other customers for consumer purchases.

Institutional buyers applied for 107 times their 60% share of the Future Capital issue while retail investors applied for 27 times their 30% portion of the issue. So-called high net worth investors subscribed for 33 times the portion reserved for them, according to a statement from Future Capital

While analysts say they had expected Future Capital’s IPO to do well because of its management’s strong track record in setting up and expanding Pantaloon, the extent of oversubscription came as a surprise to many of them.

“We were aware that it would do very well," said Nitin Khandkar, senior vice-president (research) at Keynote Capitals Ltd, a Mumbai-based brokerage. “The market knows that Mr Biyani can execute a plan, like he did with Pantaloon and it hopes he can recreate that again."

But with the Future Capital issue coming less than two years after the company was set up and at least a few months before its first mall opens, analysts also warn of execution challenges.

“The premium implies that a high growth rate is expected, but there is also an execution risk," said Vaibhav Agrawal, banking analyst at Angel Broking Ltd. “On the private equity side, there are capital market risks and on the consumer lending side there is the risk of high insecure lending."

“There will be listing gains, but then it is likely to grow sideways, consolidate gradually and then growing as performance improves," said ICICI Direct’s Kumar.

US hedge fund Och Ziff Capital Management Group bought a 10% stake in Future Capital for Rs178 a share in July, though it sold some of its stake to George Soros’ Quantum Fund at a much higher rate recently.

Kotak Mahindra Capital Co. Ltd, Enam Securities, JM Financial Consultants Pvt. Ltd and UBS Securities India were the book-running lead managers to the Future Capital issue.

PTI contributed to this story.

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Published: 17 Jan 2008, 01:10 AM IST
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