Average participation in the last 12 offers was just 2.39 times
IndiaBulls Power IPO’s charged-up performance (the issue was subscribed 21.84 times) earlier this month had only one jarring note: the retail portion of the initial public offer (IPO) barely scraped through, with a subscription of 1.09 times.
Similarly, the Oil India issue was subscribed 31 times, but saw nominal retail participation of 1.71 times. Some of the other IPOs such as Raj Oil Mills and Globus Spirits never saw the retail portion being fully subscribed.
Overall, in the last 12 public offers, the average retail participation was 2.39 times — a sharp decline from 2007, when the average subscription was 14 times.
Since mid-March, the stock markets has seen a huge rebound, with the Bombay Stock Exchange Sensitive Index, or Sensex, which was languishing at 8,000-levels in the first week of March, more than doubling to 16,000 points in the last six months.
But the story has not been encouraging for the IPOs that were launched in this boom period. The poor retail participation was also reflected in the performance of the listed companies on their market debut. Oil India, for instance, listed at an almost 3 per cent discount.
All the others, including Adani Power, Raj Oils Mills, National Hydro Power Company (NHPC), Globus Spirits, Pipavav Shipyard listed at less than 10 per cent premiums.
This is in stark contrast to 2007, when companies like Edelweiss Capital and Mundra Port listed at a 75 per cent premium. Of 103 companies that listed during that year, 62 listed at a premium of over 10 per cent.
Worse still, most of the recently-listed stocks are trading below the offer price now. As on October 28, only four of the 11 newly-listed stocks, that is, Oil India, Mahindra Holidays, Jindal Cotex and ThinkSoft Global Services, were trading at a premium.
Two stocks, Raj Oil Mills and Euro Multivision, were trading almost 50 per cent below their offer price.
Obviously, institutional investors and high net worth individuals (HNIs) who were driving the subscriptions did not gain much.
“Normally, when an institutional player does not get the chunk it is expecting, it exits the stock,” said a market player. Even HNIs who often borrow to invest did not derive much gain when the stocks were listed.
Market experts said the low retail participation was primarily because of aggressive pricing. “Many of these IPOs did not leave much on the table for investors, at least in the short run,” said Ramdeo Agarwal, director, Motilal Oswal Financial Services, admitting that he wasn’t a big fan of IPOs anyway.
Amitabh Chakraborty, head (equities), Religare Securities, said “While a booming secondary market allowed companies to price their issues aggressively, it offered investors many other options to invest as well.”
| TRADE OFF | |||
| Company | Retail subscription (times) | Offer price (Rs) | Price on Oct 29 (Rs) |
| Mahindra Holidays & Resorts India | 3.20 | 300.00 | 339.20 |
| Excel Infoways | 2.49 | 85.00 | 70.00 |
| Raj Oil Mills | 0.65 | 120.00 | 66.00 |
| Adani Power | 2.91 | 100.00 | 95.30 |
| NHPC | 3.79 | 36.00 | 30.90 |
| Jindal Cotex | 2.96 | 75.00 | 84.55 |
| Globus Spirits | 0.96 | 100.00 | 79.50 |
| Oil India | 1.71 | 1,050.00 | 1,132.20 |
| Pipavav Shipyard | 2.78 | 58.00 | 54.25 |
| Euro Multivision | 1.74 | 75.00 | 33.25 |
| Thinksoft Global Services | 3.80 | 125.00 | 220.50 |
| Indiabulls Power* | 1.09 | 45.00 | |
| * Yet to be listed | |||
The long gestation before some of these companies start commercial production is also an issue. “Many of the companies that have recently launched their issues will start commercial production in the next few years. Investors, unfortunately, do not want to stay put for such long periods,” said Deven Choksey, managing director, K R Choksey.
The way forward, according to Choksey, could be for companies that will start commercial production in the next few years to refrain from listing now.
Instead, they could look for funds from other sources like private equity. “Enter the stock market only when they are closer to starting full operations,” added Choksey. In such a situation, to attract retail participation it would be imperative for companies to price issues more attractively or wait till the uncertainty goes away.
