There has been a slew of fund raising announcements this year. Do you think valuations are stretched for some of these deals given the leveraged balance sheets of some companies
Companies had been postponing some of their capital raising plans because of low valuations and weak investor interest. That interest has come back post-elections and hence companies are going ahead with capital raising, with banks, financial and infrastructure space aggressively leading it. There is a need for capital for the real estate sector as well. Already around R25,000 crore of primary capital has been raised in H1 by listed companies, for the remaining part of the year we may easily see around R50,000 crore of fund raising.
Our view is that there is a renewed interest in India built around expectations from the new government. In general terms the markets have re-rated to an extent and now company performance has to justify further growth in valuations. For QIPs, given that there is a market reference price, investors have better opportunity to be convinced on valuations. From a demand side, we see more instances of capital raising to de-lever rather than for new growth, which was the driver in 2009-10.
Most companies are opting for follow-on institutional placements at this juncture. How soon can we see IPOs
Companies that were prepared for coming out with IPOs have already hit the primary market (about two or three of them) even before the election outcome and in the run-up of the poll. But IPOs take a longer time to be prepared for and during the run up to the election not too many people have filed their DRHPs. IPOs typically take six to nine months from start to finish so given that it is a longer cycle and eventually we will see more IPOs in Q3 and Q4 of this calendar year.
The Sebi recently made key changes in IPO norms. How much of a boost this measure will give to the primary market
In our view the changes will make the IPOs of mid-caps a lot more efficient. Increasing the anchor portion also will draw large institutional demand during that phase and provide a better signal to retail and non-institutional investors. However, the decision for companies to go public early will also be influenced by incremental compliance requirements under the new Companies Act 2013.
There has been a lot of buzz around companies that want to de-list but none have managed to do so.
India did not have private equity or VC funding options in the 80s and 90s and many companies went public. The current de-listing guidelines evolved over time to protect the interests of minority shareholders, and de-listing today can be expensive with no guarantees of success. Now given that maintaining a listed company is getting more onerous, many companies want to de-list. Another reason is that sometimes it comes in the way of efficient M&A exit as many foreign buyers arent keen on running a listed company in India .
What would be the trend in the M & A space
We will continue to see M & A in sectors like technology, industrials, pharma where deals continue to happen irrespective of the market sentiment, although valuations may vary. PE exits through primary market listing has been very poor and an increasing number of PE investors would be keen to exit their investments through the M & A process as opposed to IPO listings. In the last one year, a number of such deals have happened through strategic exits and that trend will continue. Another change noticed over the last five six years is that promoters are more open to exit businesses through M & A.