Despite the pandemic, the IPO collections till Sep-20were almost twice that of 2019. Record IPO collections happened in 2017 when Rs75,279cr was collected. But nearly Rs45,000cr out of this amount was accounted for by seven insurance companies. If you discount the insurance impact of 2017, the year 2020 could well be the best year in the last decade in terms of IPO collections.
Year 2020 – Despite the pandemic, IPOs are hot property
The year 2020 began on a robust note with the SBI Cards mega IPO. The issue was heavily oversubscribed and had a stellar listing on the bourses. However, just after the listing, the pandemic spread leading to the lockdown. If you look back at the IPOs in 2020, they appear to have flattered the street in terms of oversubscription, listing gains as well as post listing performance. The table below captures the gist of IPOs in 2020.
|IPO Issuer||Issue Closure||Issue Price||Issue Size||Subscription||Returns (%)|
|Angel Broking||Sep-24th||Rs306||Rs600cr||3.94X||Not Listed|
|UTI AMC Ltd||Oct-01st||Rs554||Rs2160cr||2.31X||Not Listed|
|Mazagon Dock||Oct-01st||Rs145||Rs444cr||157.41X||Not Listed|
|Likhitha Infra||Oct-07th||N.A.||Rs61cr||N.A.||Not Listed|
Four takeaways from the IPO-2020story
a) The IPO market is showing preference for emerging business ideas with a futuristic tweak. If you look at IPOs withheavy oversubscription and exciting market performance; most of them are from high-growth sectors. For example, stocks like Rossari Biotech and Chemcon are into specialty chemicals with a strong pharma focus. Happiest Minds and Route Mobile are digital technology plays where value creation could be exponential.
b) IPO markets have been rather sceptical about the financial sector stocks or where there are larger group issues. For example, Angel Broking and UTI AMC just about managed to get oversubscribed. SBI Cards and CAMS got good oversubscription but post-listing performance has been tepid.
c) The enthusiasm was visible in the case of stocks with solid business models and reasonablepricing. For example, Mazagon Docks IPO was available at less than 7 times P/E ratio although the company has an order book position of over Rs50,000cr. On the contrary, in the case of Angel Broking and Likhitha Infrastructure, investors had serious concerns over valuations. This is more pronounced considering that these companies are likely to face pressure on top line and bottom line.
d) There appears to be an element of secondary market boredom setting into the markets. Over the last 6 months, the secondary market has been driven by a handful of stocks like Reliance, Infosys and TCS. That has only made these stocks more steeply priced on the strength of the relentless flow of liquidity. Under these circumstances, IPOs that are reasonably priced and well positioned in businesses with exponential growth potential offer a very good alternative. That possibly best explains the IPO enthusiasm this year.
Looks like a busy Dec-20 quarter for IPOs
If you look at the string of IPOs scheduled to hit the market in FY21, then the Dec-20 quarter surely promises to be a very busy quarter. Of course, we have not factored any of the big proposed divestments like BPCL or the mega LIC IPO. That could have an unprecedented impact but we will leave that aside for now. There could be many a slip between the cup and the disinvestment lip. Even otherwise; we are staring at a busy IPO season in 2020.
It is conservatively estimated that between Oct-20 and Mar-21, Rs.45,000 crore could be raised by Indian companies via the IPO route. Of this amount, about 50% is likely to be raised by December itself. This list includes some real marquee names; most of them likely to hit the IPO market soon.
Some of the popular names that have lined up IPO plans in this fiscal include Burger King, Kalyan Jewellers, Grofers, Lodha Developers, Aakash Education, Senco Gold, Anand Rathi Wealth Management, Penna Cements, Barbeque Nation, NSE, National Insurance Company, IRFC, IREDA, Bajaj Energy, JSW Cements, HDB Financial Services, Apeejay Surrendra Park Hotels, Gland Pharma and NCDEX. If even half of these companies hit the IPO market before Dec-20, we could have an interesting and encouraging IPO season in 2020. After all, majority of the IPOs in the last 2 years, have actually done well post-listing!