Mid- and small-cap firms attract investors as large issues get tepid response.
The days of making money through initial public offers (IPOs) are back with shares of several mid- and small-cap companies listing at a premium to their issue prices. This at a time when large follow-on offers (FPOs) by public sector companies have failed to click with investors.
Man Infraconstruction Ltd, ARSS Infrastructure, Syncom Healthcare and Jubilant Foodworks have listed at a healthy premium to their issue prices. ARSS Infrastructure, which is into engineering, procurement and construction for the railways, listed at Rs 630, a 40 per cent premium to the issue price of Rs 450. The shares ended the listing day with a gain of 67 per cent.
After making money in these offerings, retail investors are showing confidence in smaller IPOs, which is reflected in subscription numbers. IL&FS Transportation Networks’ IPO was subscribed 33 times. Similarly, DQ Entertainment was subscribed nearly 86 times.
| GATHERING STEAM | ||||
| Company’s name | IPO price | Listing price | Current market price | %gain over issue price |
| Jubilant Foodworks | 145.00 | 229.00 | 277.40 | 91.30 |
| ARSS Infrastructure | 450.00 | 736.30 | 745.75 | 65.70 |
| Syncom Healthcare | 75.00 | 87.85 | 115.05 | 53.40 |
| Man Infraconstruction | 252.00 | 348.25 | 346.00 | 37.30 |
| Infinite Computer Solutions | 165.00 | 194.70 | 214.00 | 29.70 |
| (Price in Rs) Source: BSE/NSE | ||||
“A couple of things have worked in favour of these IPOs, the first being pricing and the second being how much the company leaves on the table for investors,” said Gyan Mohan, executive vice-president and head, investment banking, IDBI Capital Market, one of the investment bankers for ARSS Infrastructure’s IPO. He said the target universe of smaller IPOs was different. “Bigger issues generally target deep-pocketed FIIs (foreign institutional investors) and domestic investors while retail and high net worth individuals take interest in smaller issues if they are priced right. Distribution also plays an important role in retail subscriptions,” he added.
The appetite of retail investors was severely hit last year with dismal debuts of companies such as Adani Power, Pipav Shipyard and government-owned NHPC Ltd. However, DB Corp broke the trend and gained 25 per cent on the day it was listed. It was followed by decent listings of Godrej Properties and MBL Infrastructure. Buoyant secondary markets also played a role.
“Most of these smaller issues were from new sectors which people did not have much exposure to. Effective pricing and timing made them attractive,” said Premal Doshi, head of investment banking at Antique Capital Markets. He said IPOs which saw overwhelming subscriptions gave extraordinary post-listing gains.
“Going ahead, post-listing performance will always be a function of pricing and market conditions,” he said.
In contrast, several state-run FPOs had to be rescued by LIC after inadequate subscription. There was hardly any retail participation and in most of the cases, the retail quota had to be allotted to qualified institutional buyers. Even presence of a large number of foreign investment bankers could not save these issues.
“Pricing was key as investors found these issues expensive. The demand and supply factor worked in case of smaller IPOs as the amount they were raising was small and so we saw a lot of demand,” said Diveyesh Shah, CEO, and Indiabulls Securities.
