The Hindu Business Line : IPOs worth Rs 10,000 cr likely by year-end

SUSTAINED ebullience of the secondary market and good response to recent initial public offers (IPOs) have raised the hopes of several companies that wanted to raise equity capital from the public but were discouraged by depressed investor sentiment earlier.

Merchant bankers say that companies big and small are getting ready for new issues. Says Mr S. Sriniwasan, Vice-President and Co-head, Investment Banking at Kotak Mahindra Bank, "The pipeline is certainly building up. And unlike in the past, this time around companies from diverse industries have lined up issues." He said since January 2002, equity issues, including privately placed, raised about Rs 3,000 crore. The value of that equity today is more than double, he added.

Mr Sriniwasan, who had managed the public issue of Maruti Udyog, estimates that about Rs 8,000 crore may be raised this year through IPOs. His estimate includes the likes of TCS and BPCL, which are a little uncertain but nevertheless "in the offing". Among the others are Patni Computers, Dredging Corporation, Indraprastha Gas, IBP Company and Vijaya Bank.

Says Mr Prithvi Haldea of Prime Database, which independently monitors the primary market, "Nearly 100 companies are in an advance state of readiness to make public issues. About 20 have already filed offer documents with the regulator." Mr Haldea reckons that if the secondary market holds up, the remainder of the year could see issues worth about Rs 10,000 crore. The benchmark BSE Sensex had hit a 30-month high early September.

Recent issues do indicate that public appetite for primary equity issues has increased. UCO Bank, which planned to raise Rs 240 crore, collected Rs 4,200 crore from an issue that was oversubscribed 17.5 times. The bank received 10.5 lakh applications, a record for the past three years. Around the same time, IOB got 4.5 lakh applications for its issue of the same size as UCO's. The oversubscription was 6.25 times or Rs 1,500 crore.

Many market observers see the number of applicants as an encouraging factor. "The key difference among the two (UCO and IOB) was pricing. While IOB was priced at Rs 24 per share (Rs 10 face value + Rs 14 premium), the UCO issue was priced at half that (Rs 10 + Rs 2). For the small investor to participate, the risk has to be smaller. UCO's was an affordable risk," said Mr Kamlesh Gandhi, Executive Director of Centrum Finance.

According to a survey done by SEBI and NCAER recently, in 2000-01, the year of the tech mania, about 21 million individual investors put their money in bonds or equity. In terms of households, while about 6.5 million households owned equity that year, 9.6 million owned debentures. That is a large but wary market.

Mr C. Parthasarathy, Chairman and Managing Director of Karvy Consultants Ltd, which is lead-manager in two offer documents filed with SEBI, said this time around mere project "proposals" would not sell. Only those with proven track records would succeed in the IPO market. In retrospect, perhaps some of the projects sold to the public in the past were little else than the promoters' daydreams.

Intermediaries are also careful. "Our approach has become conservative. The emphasis now is on quality of management. You may be a good scientist with an excellent idea but if you are not a good manager, the issue would not sell," said Mr Parthasarathy, who has been approached by about 20 companies over the past couple of months to raise equity capital.

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