The IPO from SamvardhanaMotherson Finance Limited (SMFL) which had tapped the capital markets to raise Rs 1,665 crs was withdrawn at the end of the 3rd Day after receiving very poor response to the issue. The issue was subscribed under a fourth and almost all of the same came from QIB’s. The HNI, Retail and Shareholder portion were subscribed a mere 1% each.
What is most unfortunate is that with half the issue reserved for retail and HNI’s, this category was not wooed or explained properly what the benefits of investing in the company are.
The company held its road show in Mumbai on the 24th of April, but very inappropriately decided not to announce the price band. An analyst meet for an upcoming IPO without a price band is a meaningless exercise and it puts off people attending the event as being a waste of time. It also sends a wrong signal to the market participants that the price band is not being announced simply because the management and merchant bankers want to hide something. This could also mean that the price is unjustified and hence they want to avoid discussion on an issue which would in any case turn out be self-defeating. If the merchant bankers and promoters believed that the price was expensive and hence did not announce the same in Mumbai, they have already killed the issue even before it completed its road shows.
The secondary markets have been doing badly for some time now and the primary markets have been worse. If the markets are to be revived you need a mega issue which is reasonably priced, makes money for its investors and therefore helps in restoring confidence. There was an opportunity in SMFL to do this. Here was an issue with had size as the same was raising Rs 1,665 crs. It was from the Auto Ancillary space and if there is one sector which has done well in the last 12-15 months it is the Auto sector. There is only one other sector which has done well and that is the FMCG sector. This company is a virtual mirror image company to SMFL in the form of MothersonSumi Systems Limited and that company is in existence now for 19 years having an excellent track record. The asking price for SMFL was substantially higher than MothersonSumi and therefore the response from investors was extremely poor.
The Indian Rupee has depreciated very sharply in the last few weeks and this would have been a great advantage for foreign investors as they would have to invest fewer dollars for the same amount of Indian Rupees. One believes this issue having being withdrawn is a big blow to the primary market and it is time that promoters and merchant bankers get their act today. It is high time that they realise that pricing is the key to the success of an issue. A primary market issue has risks compared to a secondary market security. If there is an apt comparable there is no way that the primary market issue could be at a premium valuation to the secondary market.
The revival of the primary market is unfortunately in the hands of merchant bankers and promoters, and it is a tragedy that neither of them want to become lessgreedy or leave something for investors on the table so that they make some money. In such a scenario it is best for prospective investors in the primary market to shun every issue which comes to the market place until and unless it is offered real cheap. Unfortunately that day may simply not come.