Sensex hit its record lowest on March 23, 2020, triggered by news of the pandemic worldwide. Many Indian companies postponed their initial public offerings for the future, including those which had filed their draft papers or share sale documents, a year or two back. However, this lacuna in the IPO market was filled as equity markets rebounded in a few months with the Nifty 50 index gaining up to 80% by December 2020 from its 52-week low point in March.
IPO market on an all-time high
The positive market sentiment saw 19 IPOs to the tune of $1.84 million in the last quarter of 2020 alone, surpassing 2019, which had just 11 during the same period. Sensing the strong momentum in the IPO market into 2021, many companies are now showing interest in raising capital across sectors. More than 12 of these have seen failed IPO attempts in the past but are going public for the second or third time again this year taking advantage of the market buoyancy.
Some of the names include MacroTech developers (real estate) sector, Nazara Technologies (gaming), and Seven Island Shipping (logistics) among others. There are many underlying reasons why the IPO market has become attractive for companies yet again. Here are a few:
Market bull run: In February this year, Sensex almost doubled from its historic low last year to hit the 52,000 mark. This rally in stock prices started in the middle of last year and has picked up pace slowly to reach current levels, breaking all records. So much so, that even cash-strapped companies suffering the blow from Covid-19 dusted off their IPO plans to raise funds.
Favorable budget: Budget 2021 proposed a slew of norms to increase the ease of doing business and provide incentives for funding, especially for the start-up and MSME sector. This included an exemption on capital gains for investing in start-up companies and extending the eligibility for claiming a tax holiday. The budgetary allocation of Rs 15,700 crore to the MSME sector and reduction of customs duty also came as a relief. An additional Rs 1500 crores were also earmarked to give a boost to digital payments. These measures have given a fillip to several sectors of the economy.
Foreign capital inflows: The positive growth in the Indian bourses has piqued the interest of both retail and institutional investors. FII inflow touched the highest in the last three months of 2020 and has remained resilient ever since. Investors are optimistic about the growth potential of India as an emerging market.
Excess liquidity: With shares available at cheap prices, investors grabbed stocks of companies in the ready-to-eat segment, shipping technology as well as technology solution providers. This prompted asset managers, biotechnology companies, and even broking firms to test the waters by coming up with their initial public offerings.
Capex requirements: Bigger companies are looking to expand further but can be daunted with funding crunch when it comes to their capital expenditures. They are also looking to the IPO market to procure money to sustain their growth and take care of their operating costs that require a considerable financial investment.
PE exits: In 2020, 55% of the money raised by initial public offerings allowed for favorable by Private equity or venture capital exits. This was the highest in the last few years according to a report by Prime Database. PE exits in most companies through their IPO plans has been an ongoing trend for the last 7 years and is an indication of the maturity of the capital market.
The early movers
Buoyed by all these factors, the Securities and Exchange Board of India has approved the initial public offerings of 27 companies, out of which 10 are lined up for March. Some of these are:
Anupam Rasayan: This is a leading Indian company involved in the custom synthesis and manufacturing of specialty chemicals that will utilize the funds raised in the IPO market for debt repayment of an amount equal to Rs 556 crore. It has 2 verticals; life science-related specialty chemicals(agro-chemicals, personal care, and pharmaceuticals) and other specialty chemicals(pigment, dyes, and polymer additives).
MTAR Technologies: A precision engineering company in Hyderabad that provides services to the defense and space sector including Rafael, ISRO, and DRDO. The IPO which opened for subscription on March 3 aims to raise Rs 596.41 crore.
Easemytrip Planners: The IPO of this online travel agency is slated to be listed on March 8 to raise a capital of Rs 510 crore through a complete offer of sale route. It is expected to close on March 10.
Aadhar Housing Finance: Draft papers submitted to SEBI reveal that this private equity firm backed by Blackstone Group Inc has filed for an IPO of up to Rs 7,300 crore.
Kalyan Jewellers: Kerala-based jewelry company, the biggest in south India will raise Rs 1,000 crore via a fresh issue. A stake worth Rs 250 crore and Rs 500 crore will be sold by both promoters of the company respectively.
Barbeque Nation Hospitality: This pan India restaurant chain wants to raise between Rs 1,000-1,200 crore from the IPO market: a fresh issue of Rs 275 crore and an offer for sale(OFS) of 98,22,947 shares.
An exuberant secondary market has led to an uptick in the initial public offerings from companies with many making a beeline for the IPO market with their plans. And, why not? Out of the 13 companies which launched their IPOs post-July 2020, 3 were subscribed more than 150 times given the rising indices. To take advantage of this trend, many unlisted companies are engaging with bankers to ensure an early entry into the IPOs ahead of their future timelines.
Analysts are of the view that while companies in the technology, healthcare, and consumer industry will dominate the market with their IPO plans, sectors recovering from the economic downturn won’t be left behind. 2021 will also see players in the hospitality, real estate, banking, financial services, and insurance sector also come up with their initial public offerings. An IPO is a life-changing event for a company and the current economic conditions are in favor of the IPO market with a huge pipeline of initial public offerings waiting to be unleashed.