Initial public offerings fell to their lowest in at least four fiscals during the 12 months ended March as companies turned cautious due to market volatility.
Only 13 companies hit the primary market in the previous financial year compared with 45 in 2017-18, according to data compiled from Prime Database. That's the lowest since FY15 when only eight companies issued maiden offers.
Liquidity crisis among non-bank lenders, escalating trade war fears, higher crude prices and a weaker rupee led to volatility in equities. The recent rout in the broader market also dissuaded companies from offloading stakes and raising funds. The NSE Nifty Smallcap 100 Index and the NSE Nifty Midcap 100 Index tumbled nearly 16 percent and 4 percent, respectively, in the last financial year, according to Bloomberg data. The benchmark Nifty 50 Index, however, gained as much as 14 percent during the period.
Funds raised by the companies slumped nearly 88 percent year-on-year to Rs 9,923.55 crore in 2018-19—nearly 62 percent of which were raised by public sector entities and financial services companies.
Over the last two years, nine state-run companies were listed on the stock exchanges as part of the government's divestment plan, but only two trade above their issue prices.
The IPO activity may not pick up until elections are over, according to Deven Choksey, managing director at KRChoksey. “The secondary market is expected to remain volatile till the general election and that could keep the primary market dull,” he said.
There are 64 companies, including Lodha Developers, PNB Metlife Insurance and SREI Equipment Finance, that have received the market regulator's approval for launching IPOs.
Here's what the brokerages said worked best or were negative for the public offers launched in 2018-19:
The Best Three
Fine Organic Industries
- Largest maker of oleo chemical-based additives in India and one of the few big companies globally having high entry barriers.
- New product launches under joint venture with Zeelandia.
- Volume growth to pick up from the second half of the ongoing financial year due to a ramp up of its new Ambernath facility (about 46 percent increase in capacity).
HDFC Asset Management Company
- It's the largest fund house by assets under management and has equity assets worth close to Rs 1.42 lakh crore as of February 2019.
- Best positioned to capture the high-growth potential of India's mutual fund industry.
- Strong track record, consistent return-on-equity of 40 percent and a wide distribution network.
Aavas Financiers
- Focus on the affordable housing segment in rural and semi-urban locations across western and central India.
- Strong asset quality, presence in less competitive segments.
- Growth to come from existing locations (92 percent of portfolio across four states) as well as from expanding to newer geographies.
The Worst Three
Varroc Engineering
- Input cost pressures hurt margin.
- Revenue deceleration from key clients—Ford and Jaguar Land Rover—due to headwinds in China and the U.K., coupled with a slowdown in auto sales for domestic companies.
- In India, it supplies components to two- and three-wheeler makers with Bajaj Auto Ltd. alone contributing nearly 18.6 percent to its consolidated revenue in 2017-18. Top five clients contribute 60 percent to its top line.
- Brokerage Citi cut earnings estimate by 11-14 percent over financial years 2019-2021.
Indostar Capital Finance
- Money managed by the fund house grew at a slower pace in the first nine months of the last financial year as corporate assets under management fell.
- Overall asset quality remained stable but stress on the SME book remained high.
- The real estate portfolio accounts for 32 percent of the overall AUM; any adversity in the corporate and real estate asset quality is a big risk.
Ircon International
- Weak market conditions at the time of listing hurt the stock's performance.
Note: The reasons for the best and worst-performing public offers have been compiled from the research notes of SBICAP Securities, Motilal Oswal, Citi and HDFC Securities.
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