If going public is the way to be, this seems to be just the moment. It?s not just the traditional sectors, but emerging ones such as microfinance, food retailers, travel companies, jewellery houses?and yes, going forward may even be cricket clubs ?are making their IPO forays. The Indian capital market has never looked livelier, even as analysts remain in a wait-and-watch mode.
After bidding a mammoth Rs 1,702-crore for the Pune team, Subrata Roy announced his intention to take his newly acquired IPL team public by 2013, hinting at a scenario that the IPO market is being led by the Indian consumer story. As R Balachander, IPO leader, Ernst & Young says, ?Consumer spend in India is at an all-time high. Sectors that are consumer driven will need the necessary capital for expansion and will come to the market to raise money. Given the growth potential and attractive price, retail investors will relate to consumer product companies.?
A sentiment echoed by Avinash Gupta, financial advisory leader, Deloitte, who believes that the IPO spectrum will witness a sea change after the 3G take-off. ?Industries which have a critical mass and consumers base will look at coming out with IPOs, a sign of the industry becoming mature. With 3G auctions around the corner, the trend is definitely going to grow, as companies will need the capital to sustain their strategic investments.?
In a paradigm shift, one of India?s fastest-growing sectors, microfinance, is making headway in the IPO space, with SKS as the country?s first microfinance company to hit the capital market to raise around Rs 1,200 crore. Even as a few eyebrows rose over its management commitment after SKS Microfinance chairman Vikram Akula sold a part of his stake, making a neat 12-fold profit before the issue, analysts are divided about the fate of the offering. ?SKS IPO is keenly awaited and will set the tone for others in the industry to hit the primary market. Once the move is made, SKS will only be the fourth microfinance institution in the world to have successfully completed an IPO,? says Rohit Madan, research director, VCCEdge.
SKS has already invited considerable interest from PE players by raising more than Rs 570 crore in private equity funding. However, FIIs too are likely to will follow suit after the IPO, say experts. As Balachander says, ?Even as FIIs are more gung-ho about infrastructure and power, microfinance will also generate a lot of interest. Microfinance makes for a good business case, and coupled with the right reach and spread, it will invite considerable investment. Once microfinance institutions raise capital, they can access banks that have outlays towards priority sector lending for further expansion.?
However, there are some like SP Tulsian of sptulsian.com who are not very enthusiastic about microfinance entering the IPO space. Tulsian explains that going by the track record of the Indian market, only tried and tested models have worked best in the country. ?For them to work, unique concepts require a gestation period of at least 8-10 years and one is not sure if the investor is ready to wait that long.? He cautions that even as microfinance is drawing considerable attention currently, the market had witnessed a similar euphoria when multiplexes and retail chains took the market route, but eventually had a short-term impact.
Also treading the IPO path enthusiastically are jewellery houses, with as many as three ? Thangamayil Jewellery, Shree Ganesh Jewellery House and Goenka Diamond & Jewels ? hitting the market in the first quarter of the year.
Says Chetan Majithia, head equities, Crisil, ?Following the trend, other jewellery houses such as Tribhovandas Bhimji Zaveri is also mulling the idea. Traditional business are now realising the benefits of being listed, which means a better reach and exposure for the sector, which is great.?
These jewellery houses are trying to replicate the successful model of Titan and Gitanjali by going public. However, Tulsian warns, ?Even as the retail segment is catching on and brand visibility is a cardinal aspect to grow, it will be interesting to note if these companies will be able to reward their shareholders. So, even if you have a consumption-driven IPO, only a sustainable and earning model can back it.?
Echoes Abhay Bhalerao, director, Equirus Capital, ?Consumer-led stories are a strong macro theme for investment, but there will be successes and failures. A key trend that establishes a sector in the market is the interest of the institutional investors and one will have to watch and see if these companies can deliver going forward.?
But for now these jewellery IPOs have generated considerable response from the investor community by amassing Rs 526 crore, giving a breather to the market at time when issues from heavy duty PSUs such as NMDC and NTPC failed to create a flutter. As Karvy Stock Broking vice-president Ambareesh Baliga explains, the trend is of small- and mid-cap issues, citing remarkable performances of Thinksoft, Jubilant Foodworks, Cox & Kings and decent returns of Godrej Properties, Sycom Health, Infinite Comp, Aqua Logistics. ?Just when investors were losing interest in IPOs, a couple of small/mid-sized issues gave new fillip to the market. Investors normally flock where money is easily made and thus they preferred investing in these instead of PSUs, which is amply reflected in the pathetic subscription of NMDC in spite of a huge discount.?
And this trend is here to stay for some time. As Baliga rounds up, ?It will continue till investors start losing money when new issues get listed. The cycle of greed and fear is playing again.?