Mumbai: Ujjivan Financial Services Ltd, a microfinancier that has received in-principle approval to convert itself into a small finance bank, raised 885 crore in an initial public offering (IPO) that closed Monday after receiving demand for more than 40 times the shares on offer.

Ujjivan’s is the third IPO in two months to be snapped up by investors—a signal that appetite is returning to the primary market.

Healthcare and diagnostics firm Thyrocare Technologies Ltd received demand for 73 times the number of shares it offered in a 480 crore IPO last week.

Earlier in April, Equitas Holdings Ltd’s 1,525 crore IPO drew demand for more than 17 times the number of shares on sale. The successful offering was followed by a strong listing that saw the firm’s shares gain almost 33% on its first trading day.

Bankers attribute the success of these IPOs to strong investor appetite in the primary market.

“The last six months have been good for the capital markets. We have seen several successful deals and that has created a positive sentiment for IPOs," said V. Jayasankar, senior executive director and head of equity capital markets at Kotak Investment Banking.

Kotak is one of the banks managing the Ujjivan share sale.

Positive sentiment in the primary market is also attracting several large firms such as Vodafone India Ltd and HDFC Standard Life Insurance Co. Ltd to tap the IPO market. While HDFC Standard Life has announced its intention to complete its initial share sale by the second half of the calendar year,Vodafone India has already mandated merchant banks for its planned $2 billion IPO, Reuters reported on Sunday.

According to data from the stock exchanges, Ujjivan’s IPO had been subscribed 40.6 times as of 7pm on Monday on strong demand from all classes of investors.

Institutional investors subscribed for 33.8 times the shares reserved for them; retail investors and high net-worth individuals subscribed for 3.9 times and 135.4 times the shares earmarked for them, respectively.

The issue, which opened on 28 April, comprised fresh shares worth 358.16 crore and an offer for sale of up to 24.9 million shares by existing shareholders. The company had fixed a price band of 207-210 per share.

Investors have flocked to the Equitas and Ujjivan share sales despite concerns around their untested business model.

Small finance banks will offer basic banking services, accept deposits and lend to underserved sections, including small business units, small and marginal farmers, micro and small industries, and entities in the unorganized sector.

“While there is a transition period which will result in a dip in the financials such as return on equity (RoE), the fact is that the business fundamentally becomes far more stronger when you become a bank. From a medium- to long-term perspective the bank model will impart a lot of strength," said an investment banker involved in the Ujjivan IPO, requesting anonymity.

The quality of the management, strong past records and asset quality, coupled with reasonable valuations had resulted in the success of these deals, he added.

Experts caution that the investor appetite, though strong, is still limited to a few sectors and few companies.

“Old economy sectors, such as power, infra and real estate, are still far away from the IPO market," said Prithvi Haldea, chairman of Prime Database, a primary market tracker, adding that investors are keen on good companies with good track records and reasonable valuations.

Haldea added that one cannot deny the possibility that a run of successful IPOs could spark a frenzy of share sales. “If the secondary market goes on a bull run and IPOs that come to market, they all start trading at a significant premium to their offer price, then it will embolden second level of companies—bad companies with bad pricing—to tap the market although we are still away from that phase."

Ujjivan’s share sale will help the firm lower its foreign shareholding to around 45% from the current 77%, helping it meet the Reserve Bank of India guideline limiting overseas ownership in small finance banks to 49%.

Foreign investors selling their shares through the IPO include World Bank arm International Finance Corp., impact investment funds Elevar Equity Llc and India Financial Inclusion Fund, Dutch development finance institution FMO, Sarva Capital, Women’s World Banking Capital Partners, Wolfensohn Capital Partners and Mauritius Unitus Corp.

In February, Ujjivan raised fresh capital to the tune of 292 crore in the so-called pre-IPO round. The company expects to start its small finance bank operations in the first quarter of 2017, the company said.

For the nine months ended December, Ujjivan reported a profit of 122.3 crore on revenue of 729.6 crore.

As of 31 December, the company served more than 2.77 million active customers through 470 branches across 209 districts. Ujjivan had 4,589 crore of assets under management, with a presence in 24 states.

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