By Prashant Mukherjee, IANS
New Delhi : The strong performance of the Indian capital markets is prompting hundreds of companies to consider initial public offerings (IPOs) and join the 83 others which have raised around Rs.300 billion ($7.6 billion) in the year so far.
But unlike in the past years, companies are devoting much more attention to matters such as transparency, investor relations and competitive pricing, though primary market operations are buoyant and markets have ample liquidity, analysts said.
“Fifty-six companies have filled red herring prospectuses with SEBI (Securities and Exchange Board of India) and are waiting for approval,” said Sandeep Khandelwal, director of New Delhi-based Prime Database, a think tank on primary markets.
“Our economic growth is more than nine percent per annum and there is incredible demand. The significant jump in IPOs is driven by this booming economic growth and robust returns on capital markets,” Khandelwal told IANS.
Reliance Power, Wockhardt Hospital, Future Capital Holding, IRV Infrastructures, Emaar Mgf Land and the National Hydro Power Corp are among the major companies that are looking at IPOs.
Another major reason for the flurry of IPOs is valuations, analysts said.
“Many companies want to use their public issues to rope in foreign and domestic investments. They want market valuations and they also want to get rid of old expensive debt,” said Prashant Kothari, fund manager with Kotak Mahindra.
At the same time, companies are aware that issues like transparency and investor relations play a major role in ensuring a healthy premium and success of their public issues since investors have a much wider choice.
“Transparency during an IPO has come a long way in India. Now these issues, more or less, match international standards,” explained Mehul Mehta, vice chairman of investor relations (IR) at Adfactors PR.
“Previously, only a few large companies, mostly in the technology sector, took IR seriously. But now nearly all large-cap and many mid-cap companies realise the need for focused IR efforts,” Mehta added.
Along with such issues, companies also realise that underwriters, who value the pricing model of upcoming issues will face a tough time. As a result, virtually every IPO syndicate includes one or more co-managers and several non-managing underwriters.
“For valuations, we take into account two factors – the price at which the share has been allotted and the closing value on the first day of trading. The average of the two sets the valuation,” said Siddharth Banerjee of Pinnacle Finance.
“We find that offer prices are more likely to be adjusted upward or downward in response to positive or negative information when the shares list for the first time,” Banerjee explained.
But the question that remains is: at what price should shares be allotted to an investor? For this, the government had discussed the proposal with the watchdog after which an expert panel was asked to give its recommendations.
“One model being considered is: qualified institutional buyers will bid for the shares in an open auction. The lowest bid will become the issue price for retail investors,” said Deepak Guwalani, director of Aov Forex, a trading house.
Explaining the process further, analysts said if a company offers one million shares, institutional investors are asked to indicate the number of shares they wish to buy and their offer price.
Accordingly, the company analyses at what higher price the entire issue can be subscribed and that eventually becomes the price for both the bulk and retail investors.
(Prashnt Mukherjee can be contacted at [email protected])