The recent correction in the stock market has made IPO issuers jittery with a visible decline in grey market premiums as well as subscription levels. Movements in the secondary markets often set the mood in their primary counterparts. The situation isn’t any different this time and the phenomenon is visible in the numbers.
In the 11 months of 2022, Indian stock markets saw a total of 33 mainboard IPOs with average subscription of 18.3 times, according to IPO subscription status by IPO Central. This included the undersubscribed IPO of Five Star Business Finance which had a subscription of just 0.7x. Maximum subscription of 74.7 times was recorded for Harsha Engineers IPO.
Against this backdrop, the performance of recent IPOs has been abysmal. The recently concluded public offers of Landmark Cars, Abans Holdings and Sula Vineyards barely met the benchmark set by their predecessors and were able to garner subscription of 3.06x, 1.1x, and 2.33x, respectively. Although Uniparts India, which concluded earlier this month, received subscription of 25.3x, the enthusiasm fizzled out when the stock made a tepid listing.
Grey market premium (GMP) is another area which has taken a beating lately. Activity in Landmark Cars IPO – which retails cars from premium brands including Mercedes-Benz, Honda, Jeep, Volkswagen and Renault – started positively at INR 55 per share which translates to indicative gains of nearly 11%. However, the premium in the informal market steadily came down and has vanished altogether at the latest count. This is despite the company boasting to high return ratios and reasonable valuations.
The situation has been starker in the case of India’s largest winemaker Sula Vineyards which priced its public offer in the range of INR 340 – 357 per share. It commanded a premium of INR 60 per share, giving hopes to investors of potential profits of nearly 17%. There was even healthy buying and selling activity in the grey market to make its case. With the passage of time, this premium in the informal market has not only come down to zero but has even gone in the negative territory. According to the latest rates by IPO Central, the IPO is likely to open at a discount of INR 5 per share which isn’t a big loss but still represents a massive change from where it started. Nevertheless, the losses for HNI investors, which fund their applications through short-term loans, are bigger.
As for financial services player Abans Holdings, the premiums in grey market started off at INR 10 per share and scaled a high of INR17 per share before crashing. At the latest count, the figure stands at zero, effectively meaning that investors would be lucky to make any money on their applications. The company priced its IPO in the range of INR 256 – 270 per share.
The latest developments surely indicate tougher days for companies looking to raise public funds. Against this backdrop, IPO-bound companies will need a slew of measures to make successful debuts, including rationalization of IPO size and price bands according to ground realities of the underlying business.
