After a five-year lull, infrastructure and infra-linked companies made a comeback into primary markets this calendar year as the street hoped of a recovery in such sectors due to increased spending by the National Democratic Alliance (NDA) government.
In the current calendar, eight infrastructure and infra-linked companies – Inox Wind, Navkar Corp, Sadbhav Infrastructure, PNC Infratech, Power Mech Projects, MEP Infrastructure Developers, and Pennar Engineered Building Systems (PEBS) – made their stock market debut. These companies raised a total of Rs 3,800 crore, stock exchanges data showed.
Investment banking experts said the revival in fund raising activity by infrastructure companies acts as a positive sign for the sector. The markets have not witnessed a single initial public offering (IPO) from infrastructure companies. In May 2010, Jaypee Infratech listed on the stock exchanges after raising close to Rs 2,300 crore via an IPO.
Dharmesh Mehta, MD and CEO, Axis Capital said the sector is showing initial signs of recovery, and more companies are expected to take the IPO and equity fund-raising route in the next two-three years.
“Increased government spending on infrastructure projects will revive growth in the sector. Once the order books of such companies improves, they will need fresh capital. Hence more companies will look to raise funds via the IPO route,” Mehta said.
A further look at the data showed that 90% of the IPO proceeds by infrastructure companies this year were towards growth capital and business expansion – a contrast to the broader primary market trend where companies have hit primary markets to provide exits to private equity (PE) investors.
While primary activity is picking up, poor performance of infra shares on the secondary markets continues to pose a risk for investors. For instance, shares of MEP Infrastructure are currently trading at Rs 47.45 apiece, down 25% from the issue price of R63 per share. During the year, the Nifty Infra index has lost more than 11%, exchange data showed.
“Infrastructure projects are huge and their execution takes time. Hence it will take at least couple of years for us to feel the positive impact of the increased public spending,” Mehta added.
Even realty sector, another stressed area, awaits revival of investor confidence as the last real estate company that hit primary markets was in 2010. Lavasa Corporation, a subsidiary of Hindustan Constructions, failed to hit the primary markets despite getting a nod from the regulator twice. The company let its regulatory approval lapse citing poor market conditions for its Rs 750 crore IPO.
Paranjape Schemes and Dilip Buildcon have received regulatory clearance and are waiting for the market conditions to improve before launching their IPOs, investment bankers said, adding that both the public issues will take another six months. NSE Realty index has declined 17% this calendar year, data showed.