Weak equity markets and lack of investor appetite forced several companies to shelve their plans of launching initial public offerings (IPOs) in 2013, even though these companies had received a go-ahead from the regulator. An approval from Securities and Exchange Board of India (Sebi) to launch a public issue is valid for one year. “We are also talking about some companies with a very large issue size. Most of these companies belong to sectors such as real estate and infrastructure that have eroded investors’ sentiment. Given that the future outlook remains weak and valuation gap (pricing) continues to be a concern, investors may stay risk- averse,” said Prithvi Haldea, CMD, Prime Database.
According to a recent report by Morgan Stanley, India's macroeconomy is in trouble because of lethargic action from the government. A sharp fall in household savings over the past five years has further dampened the market situation, it said.
“Public savings need to rise sharply... The risk is that if these do not happen, India slips into a prolonged period of sub-potential growth and stock market returns. The reverse is possible with strong policy action,” said Morgan Stanley analysts Ridham Desai, Sheela Rathi and Utkarsh Khandelwal in their research note.
Experts said the future for the IPO market continues to look uncertain. Market watchers believe a lot will depend on how the country’s economic situation improves. “Companies are enquiring...showing interest in tapping capital markets. But none or very few of these enquiries are getting translated into actual launches,” said an official at SBI Capital Securities, requesting confidentiality.
According to Prime Database, 27 companies cancelled their plans to tap the primary markets and the aggregate amount lost this year is pegged at R6,765.30 crore.
Companies that failed to launch their IPOs in 2013 include state-owned Rashtriya Ispat Nigam (R2,500 crore), financial consultancy firm IFCI Factors (R750 crore), Vishwanath Sugar & Steel (R374 crore) and PME Power Solutions India (R350 crore), among 23 others.
Other names that shelved their IPO plans despite valid approvals include steel tube and pipe manufacturer UIC Udyog (R108 crore), TV Vision (R135 crore) and Delhi-based plastic and packaging company Varahi (R110 crore).
Two more companies — Tristar Retail (R25 crore) and Shirdi Industries (R125 crore) — have their approvals valid to launch IPOs until next week; however, experts say these issues may not be able to successfully go through. Tristar’s approval will lapse on December 20 whereas Shirdi Industries has time until December 23, data show.
Capital market experts said the lack of depth in secondary equity markets is the foremost reason for the poor performance of IPOs. Weak economic conditions, lack of progress on policy reforms and structural issues with India's economy have seen the market trade in a narrow range and, as a result, led to a decline in investors' confidence.
Interestingly, the amount lost by these 27 companies is far higher than the capital raised by companies via IPOs this year. As many as 35 companies successfully launched their IPOs so far in CY13, cumulatively raising worth R1,061.75 crore, data show. Some notable companies that launched their IPOs in 2013 include Just Dial (R940 crore) and Repco Home Finance (R270 crore).
The number of companies withdrawing their public issue was even higher in the previous two years. As many as 40 companies — with paper worth R10,370 crore — failed to launch their IPOs in 2012 whereas IPOs of 31 companies (cumulatively worth R40,150 crore) failed to take off in 2011.