Plastene India Limited Issue withdrawn
May seems to be a difficult month for MotilalOswal. In May 2011 Galaxy Surfactants was withdrawn and in May 2012, Plastene India has been withdrawn. The company was tapping the capital markets with its issue for 92.55 lac shares in a price band of Rs 81-84. The issue was open for 5 working days from 9th May till 15th May. The company received a total subscription of 26.45 lac shares or 29% of the issue size. The breakup of the subscription shows that there was not even a single bid from QIB’s while Retail bidders chipped in with 5% of their quota. The encouraging response was from HNI’s who subscribed to 24.29 lac shares or 1.76 times their quota.
What went wrong? Is it just the May factor or a mere coincidence?
The problem is the same in both issues; OVERPRICING. Plastene India limited which had a price band of Rs 81-84 demanded a PE multiple of 23.62 times at the lower end of the price band and 24.50 times at the upper end of the price band. The net margins of the company were a mere 2.69% and have fallen significantly compared to last year. The net profit in March 2011 was Rs 21.23 crs which in ten months ended January 2012 has fallen to Rs 10.12 crs. The greed of promoters and merchant bankers in over pricing issues is simply killing the primary markets. The right price is something which these people need to learn. If competition with almost double the margin is available cheaper, why would one want to invest in such a new company?
Intermediaries must realise that times have changed. Gone are the days when grey market premiums and only hype were enough to sell issues. The first day listing norms change has reduced volatility and traded volumes which used to be between 10-20 times of IPO size and are now between 15-20% of IPO size, a drop to 1/50th of the volume. It is now time that pricing should be more clearly understood and debated and there be enough left on the table for investors.
To add insult to injury, one hears of the fact that while road shows to market the company were held in Ahmedabad and Rajkot, the same was not done in Mumbai. Indeed surprising as almost all broking houses have their research departments in Mumbai and good or bad, reports if any would typically come from Mumbai. Therefore any company coming out with an IPO not wanting to do a road show in Mumbai is inexplicable.
There are now two back to back disasters for the merchant banker and also almost for the market as well. The recent issue from SamvardhanaMotherson Finance Limited was yet another case in point where the price caused the downfall of the issue and was subsequently withdrawn. Actually calendar year 2012 began on a wrong note with Goodwill Hospital being the first issue of the year to open, and it was withdrawn. The track record for the current year shows that 3 issues have been withdrawn so far and the total number of issues that have been subscribed is just 5. The record so far is simply pathetic.