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IPOs: Fingers crossed - Views on News from Equitymaster
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  • Apr 16, 2001

    IPOs: Fingers crossed

    The sharp decline in the valuation of TMT scrips on the bourses coupled with the recent allegations have taken its toll on the Initial Public Offering (IPO) market. IPOs have progressively waned as companies continue to postpone their IPO plans due to depressed market sentiment. Even those companies, which came out with their maiden public offer, have seen sharp erosion in valuations.

    During March 2001, three companies, which include Mid-Day Multimedia, D-Link (India) and SequelSoft Limited, together raised Rs 1 bn. Two of these three IPOs are currently quoting at a considerable discount to their offer price. In case of D-Link India (Lead Managed by Tata Finance Merchant Bankers), against the offer price of Rs 300, the scrip is currently trading at Rs 144, a 52% discount to the offer price. The percentage share of ICE companies has also declined from 61% in December 2000 to 56% in March 2001. However, on a YoY basis, the percentage has increased from 44% in March 2000 to 56% currently.

    The downtrend continues…
    Company Lead Manager Issue size (Rs m) Issue price (Rs) Current price (Rs) Change (%)
    D-Link (India) Tata Finance 457 300 144 -52.0%
    Mid-Day Multimedia IL&FS 500 70 33 -53.4%
    SequelSoft Fedex Securities 66 10 NA -

    The overall performance of the primary market is also disappointing, but not surprising. The total resource mobilisation from the primary market has fallen sharply by 31% to Rs 441 bn during April 2000 to March 2001. This is primarily on account of the sharp fall in public issues (number of IPOs have come down to 8 in March 2001 as opposed to 23 in March 2000). This has resulted in many companies postponing their issue plans till confidence in restored in the secondary markets, which has had a turbulent period due to the recent price rigging allegations.

    Declining mobilisations…
    (Rs bn) Public Issue Rights Issue Private Placement Total
    Apr 99 - Mar 00 173 15 455 643
    Apr 00 - Mar 01 81 7 353 441
    Change (%) -53.3% -52.7% -22.3% -31.4%

    Meanwhile, The Securities and Exchange Board of India (SEBI) has submitted its detailed report on the recent stock market crisis to the Finance Ministry. Confidence in the secondary market could be restored if and only if corrective action is taken against whomsoever acted against the interest of the common investor by manipulating prices. However, both SEBI and the ministry have failed to correct markets as is evident from various scams that we have witnessed in the last decade. So, lets us keep our finger crossed that this time its different.



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