4 Big IPOs to Look out for in 2022

IPOs (initial public offerings) have generated a lot of buzz in recent months. Private businesses and startups looked to cash in on the positive investor sentiment in the market.

Over 40 firms launched their IPOs in 2021 (until September) raising over Rs 700 bn.

Around 30 more are likely to come out with their IPOs in the October-December quarter including fintech giant Paytm, and insurtech firm Policybazaar.

Most of these IPOs have been profitable for investors and are trading above their issue price.

For instance, the stock of home healthcare and wellness product maker Nureca has surged over 300% to Rs 1,738 from its issue price of Rs 400.

The stock of Paras Defence has rallied over 380% to Rs 846 from its issue price of Rs 175 per share.

If the market momentum continues and the liquidity remains high, then the remaining IPOs could witness strong demand.

This momentum is expected to be carried into the new year as well. Here are four IPOs to look forward to in 2022.

#1 Life Insurance Corporation of India (LIC)

State-owned Life Insurance Corporation of India is expected to come out with its IPO sometime in the fourth quarter of the financial year 2021-22.

The IPO is expected to be India's biggest-ever initial public offering with the government selling a stake of 5-10% in the insurance company.

The listing will be crucial for the government to meet its disinvestment target. It's estimated that this IPO would fetch the government between Rs 600 bn and Rs 800 bn.

LIC is India's largest life insurer, with substantial cash reserves and a long history of trust.

It's also the most profitable company owned by the government. According to a media report, the insurer made a stock market profit of around Rs 100 bn just between April and June 2021.

LIC also has a massive market share of 49.8%. The remaining 23 private firms such as HDFC Life and ICICI Prudential Life Insurance have the remaining 50.2% share.

As per media reports, a ministerial panel dubbed, the 'alternative mechanism on strategic divestment', will decide on the size of the stake to be sold. It's likely it will not be more than 10%.

Other details such as the price band, the grey market premium, exact issue size and face value of the IPO are yet to be revealed. It's also unclear what the exact dates of the IPO will be as of now.

That apart, the government is considering a proposal for foreign investors to own as much as 20% in LIC, which would enable them to participate in the nation's biggest IPO.

It's discussing a plan to amend foreign direct investment (FDI) rules so that investors can pick up the stake without the government's approval under the so-called automatic route.

No matter what happens, this is going to be the defining IPO event of 2022.

#2 Byju's

India's most valuable startup, online education provider Byju's, is also in talks to raise money via an IPO next year.

It plans to raise between US$400 m to US$600 m.

The Bangalore-headquartered company is expected to close its pre-IPO fundraise in a few weeks at a valuation of about US$21 bn. It's likely to be split roughly evenly between equity and debt.

Byju's aims to file its initial IPO documents as early as the second quarter of next year, soon after the close of its financial year in March.

It had previously looked at a timeline of 12 to 24 months after the fundraise.

As per reports, the startup and its bankers are discussing a valuation of US$40 bn to US$50 bn. Byju's was valued at US$18 bn in its latest round last month, up from US$16.5 bn in June 2021.

The online education startup has prominent global investors including Facebook founder Mark Zuckerberg's Chan-Zuckerberg Initiative, Naspers, Tiger Global Management, and private equity giant Silver Lake Management.

Its bankers include Morgan Stanley, Citigroup, and JPMorgan Chase.

Byju's has been on an acquisition binge in the past year, acquiring startups offering coding lessons, professional learning courses, and test prep classes for competitive Indian exams.

The company added 45 m students to its platform in India last year. It had more than 100 m users on the app in July 2021. Of these, 6.5 m were paid subscribers.

The company said that it's targeting Rs 100 bn (US$1.4 bn) revenue in the financial year 2022, with a 20% profit margin.

#3 Ola

Ride-hailing aggregator Ola is also exploring a public offer early next year with an aim to raise at least US$1.5-2 bn.

This values the Bengaluru-based unicorn at US$12-14 bn.

The company will raise half the capital through a primary issue while the rest will be through an offer for sale (OFS).

Unlike most startups, Ola is profitable.

The company reported a standalone operating profit of Rs 898 m for the fiscal year 2021 versus a loss of Rs 6.1 bn a year ago.

Despite revenue down 65% from a year ago due to the pandemic, Ola turned a profit, helped by aggressive cost cuts and a reduction in the workforce.

Earlier last month, Ola raised US$500 m in what could be termed a pre-IPO round. Private equity firms, Warburg Pincus and Temasek Holdings invested, along with two others.

Ola also recently announced the acquisition of GeoSpoc, a six-year-old Pune-based geospatial company. With GeoSpoc, the company is looking at building the next generation of location technology for the world.

#4 Delhivery

Adding to the list of tech companies that plan to list next year is logistics company Delhivery.

The company plans to raise US$400-US$500 m via its IPO.

It has already filed its draft red herring prospectus (DRHP) with the market regulator.

The issue size of the IPO is expected to be around Rs 74.6 bn of which Rs 50 bn will be via a fresh issue and Rs 24.6 bn from an offer for sale.

Existing shareholders that plan to sell their stake are China Momentum Fund (Deli CMF) - Rs 4 bn, Carlyle - Rs 9.2 bn, SoftBank - Rs 7.5 bn, and Times Internet - Rs 3.3 bn.

The likely valuation expected by the company via the issue is around US$5.5 bn.

The company plans to use the proceeds for funding organic growth initiatives and for funding inorganic growth through acquisitions and other strategic initiatives.

Delhivery recently signed an agreement to acquire a 100% stake in rival express logistics player Spoton Logistics.

The company also issued bonus shares to its shareholders through a resolution passed at its Extraordinary General Meeting (EGM) held on 29 September 2021.

The IPO market is booming in India. Will the trend continue?

Following the recent correction, the Indian stock market is still currently trading high and IPOs are attracting some wild valuations.

Given the abundant liquidity, the market regulator easing listing procedures and overall bullish sentiments, the IPO craze is understandable.

Data suggests that companies raised funds to the tune of US$4.6 bn from IPOs last year. Many believe this amount will be easily surpassed in 2021.

As companies line up to raise funds from the market amid high valuations, investors need to consider many factors before investing their money in an IPO.

If you are investing in an IPO, weigh in all the positive and negative factors affecting the company.

Take a close look at the company's financials and valuations. It would give you a clear picture of what's brewing.

You can also check out Co-head of Research at Equitymaster and Editor of Forever Stocks, Tanushree Banerjee's 4-Point checklist to invest in IPOs.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...