The IPO of Scotts Garments Limited which had opened on Thursday the 25th of April and was scheduled to close on Monday the 29th of April has been extended due to poor subscription. The company received bids for 26.40 lac shares against an offer for 105.07 lac shares resulting in a subscription of 25% of the offer size. The price band was Rs 130-132.
Readers would recall that the company had recently done a pre-IPO placement with Canara Bank’s venture capital fund at a price of Rs 115. This by itself was a price discovery and the need to have another price discovery through the book built price band of Rs 130-132 was unnecessary. The price band made the issue expensive and the result is for all to see. It appears that the fund insisted that the IPO issue price should be at a premium to the price at which Canbank Venture Fund invested, so that from day one of listing they would be sitting with profits. The move unfortunately backfired very badly.
The issue failed to garner adequate subscription and even though the issue had a reservation 0f 25% for QIB’s, 40% for HNI’s and 35% for retail, saw subscriptions of 36%, 36% and 12% respectively. The employee quota received subscription for 12%.
The issue has been extended by three working days to close on Friday the 3rd of May 2013 and the price band would be Rs 118-120. Effectively the price has been lowered by Rs 12 or roughly 9% compared to the earlier price band of Rs 130-132. The PE ratio on an annualised basis based on the 7 months ended October 2012 results on a fully diluted basis would now be in the band of 13.15-13.38 against the earlier 14.49-14.72.
The lot size remains the same at 100 shares. The subscription amount to be paid for investors applying in the 2 lac category would now be 1.600 shares for Rs 1,92,000. The issue looks that much better but one needs to know a little more about what went wrong. My advice to investors would be to wait for the next two days till the end of day of Thursday the 2nd of May before taking any decision. This website would update subscription levels and what action investors should take.