Going With the Tide

A rising tide lifts all boats, and the recent buoyancy in the stock market boosted the post-listing performance of 2019 initial public offerings (IPOs). The equity market, which was otherwise drooping since June, rose by around 14 per cent, year-to-date. This led to a stellar show by IPOs which hit the markets in 2019.

The markets are scaling all-time highs - the Sensex delivered over 3 per cent returns in September and October and close to 2 per cent in November. In December, it rose around 1 per cent. According to data compiled by Prime Database, of the 16 main-board IPOs of 2019, 15 have been listed so far. Of these, about 81 per cent are trading over 20 per cent of their respective issue prices (based on market price of December 23). This is in stark contrast to the previous two years - more than half the issues of 2018 and 2017 are in the red.

The leaders in the 2019 pack were Indian Railway Catering and Tourism Corporation (IRCTC), which is trading above 170 per cent its issue price of Rs 320, and Indiamart Intermesh, which is up by 120.3 per cent. Five IPOs are trading above 50 per cent while six have risen 20-40 per cent higher than their issue prices. Stock prices of only two issues in 2019 - Sterling & Wilson Solar and Xelpmoc Design & Tech - are below the issue prices. They have declined 61.2 per cent and nearly 4 per cent, respectively.

Year 2018 was different. It saw 24 IPOs, 13 of which are trading way below their issue price. Some of the worst performers include Indostar Capital Finance (-69.3 per cent), Varroc Engineering (-56.8 per cent) and Karda Constructions (-44.6 per cent). The preceding year was not an exception either with almost 64 per cent of issues that hit the market in 2017 currently underperforming their issue price. Two IPOs are trading below 80 per cent and eight below 50 per cent their issue prices. From a disappointing show of approximately 42 per cent issues trading below their issue price to above 20 per cent returns by 54 per cent of them, the IPOs listed in 2016 were a mixed bag.

Overall, of the 102 issues listed since 2016, 49 are trading below their issue prices.

High Demand

Overall response from public to the main-board IPOs of 2019 was good too. Seven IPOs received a mega response of more than 10 times; IRCTC at 109 times followed by Ujjivan Small Finance Bank (100 times), CSB Bank (48 times), Affle (48 times), Polycab (36 times), Neogen Chemicals (29 times) and Indiamart Intermesh (20 times). One was subscribed by more than three times and the balance seven IPOs were subscribed one to three times.

Retail investors were enthusiastic participants as well. Ujjivan Small Finance Bank received the most applications at 14.36 lakh, followed by 12.94 lakh for IRCTC, 11.37 lakh for Polycab and 9.2 lakh for CSB Bank.

"The response to IPOs was further buoyed by strong listing performance of IPOs of the year," says Pranav Haldea, Managing Director, Prime Database Group. Of the 15 IPOs that got listed, seven listed with over 10 per cent gain from their issue price (based on closing price on listing date). IRCTC gave a stunning return of 128 per cent followed by CSB Bank with 54 per cent.

Small Purse

The popularity that IPOs enjoyed in 2019, however, is not the whole story. Funds raised through these IPOs plummeted to a five-year low in the year.

One of the reasons is that the number of IPOs was lesser this year - only 16 main-board IPOs hit the market this year versus 24 in 2018. The amount declined sharply by 60 per cent from Rs 30,959 crore in the previous year to Rs 12,362 crore. The year 2017 was good for the IPO market when 36 main-board IPOs came out, collectively raising Rs 67,147 crore, almost double the amount raised in the previous high of 2010. The IPO market revived in 2015 and a total of Rs 1,07,255 crore were mobilised between 2015 and 2017. But it failed to garner a similar response the following year when the amount raised declined 54 per cent.

The largest IPO in 2019 was from Sterling & Wilson Solar for Rs 2,850 crore, though the average deal size was Rs 773 crore. Only three out of the 16 IPOs that hit the market had a prior PE/VC investment, a notable change from previous years. Offers for sale by such PE/VC investors at Rs 803 crore accounted for just 6 per cent of the total IPO amount. Offers for sale by promoters at Rs 7,513 crore accounted for a further 61 per cent of the IPO amount.

According to Haldea, the recent buoyancy in secondary markets as also the listing performance of IPOs in the last few months has provided some impetus to the primary market. The IPO pipeline continues to remain strong with 21 companies with approval from the Securities and Exchange Board of India (Sebi) wanting to raise nearly Rs 18,700 crore. Another 13 companies wanting to raise nearly Rs 18,000 crore are awaiting Sebi approval.

However, during 2019, 47 companies that had received a green signal from Sebi to raise over Rs 51,000 crore, allowed it to lapse, despite approvals being valid for a period of one year and after having incurred a lot of time and cost.

Year 2020 will continue to see a strong IPO pipeline and improved expectations of earnings growth. This may well lead to good performance this year, too.

@niti_kiran