Markets have had a significant correction and what could be disturbing is that they have gone down on days when there was positive news flow. The day when the insurance bill was passed, markets opened strong and they lost double of what they had gained intraday. This clearly shows that there was position unwinding and people are exiting be it profit booking or yearend considerations. Though this year end unwinding where people close out positions in the middle of March each year and re-enter in April is nothing new, it appears the impact this year is greater.
PSU banks have net NPA’s collectively at Rs 2,62,402crs against a system wide NPA of Rs 3,00,611 crs. While as a percentage the non PSU NPA is 13% of the total it opens up the question of checks and balances.
The intent of the government in getting legislative work done was demonstrated when the insurance bills was passed by the Rajya Sabha and two other bills debated in Rajya Sabha were sent to a select committee instead of the standing committee. This reduces the time frame for the bill to be returned and the option of using the “Joint Session” method for clearing the bills alive.
The primary markets have been buzzing with hope and one keeps on hearing about the huge pipeline of issues planned and expected to hit the markets ever since the new government came to power in May 2014. Things haven’t panned out like that and there have been just about a handful of issues. In the month of March however things are different and we have already seen the third issue for the month. Performance and acceptance of the issue however is a secondary matter as in the bare minimum issues have started coming.
The first issue for the month was from Ortel Communications which had a compulsory 75% QIB bucket which managed to scrape through after reducing the offer for sale portion from the issue. The issue was subscribed at the lower end of the price band and its performance in the market post listing would be important.
The second issue is from theme park Adlabs Imagica or Adlabs Entertainment which should have closed on Thursday but had to be extended because the response was poor. The QIB portion was again 75% as the company has yet to make profits. Time and again and even at the point of repeating again and again when at any roadshow pricing is discussed the standard answer given is that after extensive discussion with QIB’s and considering the future prospects of the company which of course cannot be shared with you as members of the community, the price has been arrived at. The price band for Adlabs was Rs 221-230 and the anchor investors came at the lower end of the price band at Rs 221. The subscription of the normal period of 3 days for issue being open saw subscription of 40% from QIB who are without doubt the smart and intelligent people as they decide the price. The retail bucket was subscribed and the HNI portion insignificant.
The issue on hand is that the objects of the issue are to repay debt and with a price reduction of 20% on the lower price band from Rs 221-230 to Rs 180-215, the amount to be collected by the company would reduce proportionately. This would affect the future working of the company as debt repayment would reduce and therefore interest cost per month or annum would remain higher. The company would therefore require a larger footfall to break even and make profits. With one more day of extended subscription over, not much has changed and the issue will be critically watched whether the price reduction does the magic for “Imagica”.
We have the third IPO for March 2015 opening on Tuesday Inox Wind from the promoters of the Inox group better known as promoters of Gujarat Fluorochemicals Limited and Inox Leisure the multiplex cinema exhibition company. The issue is priced at Rs 315-325 with a discount of Rs 16 to eligible retail and employees. The anchor book will be finalised on Monday and looking at the last two issues it becomes imperative that the anchor book is strong and gets priced at the top end of the band or atleast in the top quartile of the band. More on the issue in the coming days but suffice to say that the issue and the focus of the government on renewable energy with a track record of the promoters should see the issue through. Retail portion needs 2.4 lac applications at the minimum level of one lot of 45 shares to be subscribed and therefore it makes no sense to apply for more than one lot. It makes better sense to then look at the parent or holding company Gujarat Fluoro which has a market cap of Rs 8,500 crs and the company going public would have a market cap of Rs 7,200 crs of which the parent owns 75% or Rs 5400 crs. There could of course be a discount on the holding companies valuation but this also includes Inox Leisure.
The demand for capital raising is huge and the primary market needs to become super active. With so much of fund raising there is just one thingthat need to be ensured, namely that an investor needs to make some returns and no one is asking about a safety net. The promoter and merchant banker duo must consider the interests of investors and bear in mind that pricing has to be reasonable and it leaves something on the table for investors. The flip side is if that the investor loses money in two or three issues he will stop investing.
Finally a piece of advice to my dear merchant bankers is that promoters will be different each time but the community you operate is in limited. There are a mere handful of merchant bankers and the same set of investors each time. To reap the benefits of good times be reasonable and let everyone be happy.
Have a great week ahead.
