Action in the primary market hots up again

Ashish Rukhaiyar & Mehul Shah
Mumbai, 20 April 2011

After a lull of nearly a month, the primary market is witnessing some action. While gold loan provider Muthoot Finance opened its Rs 900-crore initial public offer (IPO) yesterday, the near future will see quite a few large and mid-sized issues hitting the market. The government is also expected to start its divestment programme within the next couple of months.

According to investment bankers, many companies are now expediting the process of getting regulatory approvals in place to be ready to launch their IPOs as soon as possible. Data from the Securities and Exchange Board of India (Sebi) clearly shows a marked increase in the number of companies filing draft documents for public issues. In March, 14 companies did so, the highest in a single month since October. In February, only seven unlisted entities filed papers with the capital market regulator.

The coming weeks would see a number of IPOs. Kishore Biyani’s Future Ventures plans to raise up to Rs 750 crore from a share sale offer on April 25-28. Smaller ones — Paramount Print Packaging, Innoventive Industries, Servalakshmi Paper, Vaswani Industries and Galaxy Surfactants — are coming out with issues in the next few days. Navin Jindal’s Jindal Power is likely to come out with a Rs 7,000-crore IPO in May, according to bankers familiar with the matter.

TIMING SEEMS RIGHT
"Markets have been stable for a couple of weeks and that has made companies confident of launching their IPOs," says Sanjay Sharma, head (equity capital market), Deutsche Equities India. "The performance of companies that have opened their issues will be closely watched. There is enough appetite for issues that come at the right price and at the right time. Many companies have filed their draft document with Sebi to prepare themselves for public issues."

The current calendar year has not seen many large-sized IPOs, as companies and bankers were wary on the fate of the issues. Nine companies completed their IPOs and six of those raised less than Rs 100 crore each. The largest IPO this year has been that of PTC India Financial Services, that raised around Rs 440 crore. While Tata Steel raised Rs 3,477 crore in January, it was a follow-on public offer (FPO).

"Since March, we have started seeing positive flows in the market, and with completion of state-level elections by mid-May, the timing for IPOs should be right," says Indraneil Borkakoty, head (equity capital market), Nomura India.

A section of investment bankers, however, feel it cannot be said that all issues would sail through, even if the investor sentiment looks promising. In 2008, the high-profile issues of Emaar MGF Land and Wockhardt Hospitals had to be withdrawn, though the markets had just about started to fall on account of the initial signs of a sub-prime crisis.

“The IPO market will remain challenging,” said Atul Mehra, managing director and co-CEO, investment banking, JM Financial. “However, issues from quality companies at reasonable pricing and valuation will go through. Others will have to wait.”

The next two months would also see the government launching some of the much-awaited divestment offerings, including Power Finance Corporation, ONGC, SAIL and Hindustan Copper. Government approval is already in place for these four issuances.

While PFC is expected to raise around Rs 7,000 crore, SAIL's issue size is pegged at Rs 8,000 crore. State-run Oil & Natural Gas Corporation’s Rs 11,000-plus crore FPO is slated to hit the market in June.