By Melissa KoshyAfter a sombre 2022, IPO activity in 2023 so far has been favouring SMEs.
Volatile conditions in 2023 haven’t been great for markets. Nifty 50 fell over 6.6%; companies like Joy Alukkas and FabIndia withdrew their plans to go public citing poor market conditions; and Adani Enterprises’ Rs 20,000 crore FPO was called off after the Adani-Hindenburg row plunged its share price.
Meanwhile, the Securities and Exchange Board of India (SEBI) has asked a few companies like OYO Hotels, Paymate India and GoDigit Insurance to refile their draft papers with updates. A few other firms, including Mobikwik and Ixigo, have postponed going public even after a year of getting the regulator’s nod.
Just two months into the new year, SMEs are already leading the pack. Dharmesh Mehta, CEO of DAM Capital Advisors, says, “Diminished investor appetite and an uncertain market outlook have led to big companies deferring fundraising plans.” He adds that there is a demand for selective small to mid-size IPOs that are reasonably priced in spite of the volatile market.
After a lull of two months, Divgi TorqTransfer Systems, launched on March 1, was the first of the headline IPOs in 2023. The IPO marked its debut on the bourses on March 14 with a listing gain of 2.6%. Besides this, the list of companies that will enter the bourses in the coming months looks promising. Reports suggest that Swiggy, Ola Cabs and Keventer Agro are among the most anticipated IPOs for the year. They are yet to file their draft papers with SEBI.
Near term looks bright for the IPO market; 9 firms to raise Rs 17,000 cr
So far, 23 SMEs have been listed on the bourses and another 8 will be listed soon. Automotive components company Divgi TorqTransfer Systems will be the anchor for the upcoming headline issues. According to reports, in the next four-six weeks, nine companies may hit the market to raise more than Rs 17,000 crore.
Companies planning to enter the market in the near term include Allied Blenders and Distillers, Mankind Pharma, IndiaFirst Life Insurance Company, Honasa Consumer (Mamaearth) and Survival Technologies. All the companies in focus are from different industries.
Allied Blenders and Distillers is a brewery that is among the largest Indian-made foreign liquor (IMFL) companies in India, in terms of annual sales volumes in FY14-21. The company’s brands are sold across 30 states and Union Territories, and exported to 22 international markets as of December 2021.
Mankind Pharma has the fourth-largest domestic sales and second-largest sales volumes (as of FY22) among Indian pharmaceutical companies.
IndiaFirst Life Insurance Company is one of the fastest-growing private life insurers in India in terms of New Business IRP (as of FY22). It was the third fastest private life insurer in India to achieve profitability for three consecutive years.
Honasa Consumer, a personal products company, is the largest digital-first beauty and personal care (BPC) company in India in terms of revenue from operations in FY22. It houses brands like Mamaearth, The Derma Co., Aqualogica, and Ayuga.
Survival Technologies is a contract research and manufacturing services (CRAMS)-based specialty chemical manufacturer in India. It is a leading manufacturer of select products from the heterocyclic and fluoro organic product groups for sale in domestic and international markets.
Most upcoming IPOs mainly consist of offer for sale
Allied Blenders’ IPO comprises a fresh issue worth Rs 1,000 crore, and an offer for sale up to Rs 1,000 crore. Out of the total proceeds from the fresh issue, it plans to utilise Rs 700 crore to repay debt and the remaining for general corporate purposes.
Survival Technologies’ issue will amount to Rs 1,000 crore, consisting of a fresh issue worth Rs 800 crore and an offer for sale of Rs 200 crore. The proceeds will be used for funding the working capital requirements and general corporate purposes.
IndiaFirst Life Insurance’s IPO will be in the range of Rs 2,000-2,500 crore, say reports. It will comprise a fresh issue worth Rs 500 crore and 14 crore shares on offer for sale.
Honasa Consumer’s offer will consist of a fresh issue amounting to Rs 400 crore and 4 crore shares on offer for sale. The proceeds from the public issue will be utilised for advertising and corporate expenses, capital expenditure in setting up new exclusive brand outlets (EBOs), and investment in its subsidiary BBlunt to open new salons.
Mankind Pharma is the only company with no fresh issue. It has 4 crore shares on offer for sale and its The issue size is expected to be Rs 5,500 crore, making it one of the largest-ever public issues by a domestic pharma company. Proceeds from the issue will be used to pay the selling shareholders.
Upcoming IPOs are in industries that have not been performing well
Among the five industries that these upcoming IPOs belong to, personal products is the top-performer with an 11.1% rise in the past year, followed by breweries & distilleries with a 3.2% rise.
But all these industries have fallen in the past quarter. Life Insurance fell the most by 18.2%.
Companies underperform their listed peers in terms of EPS
All companies planning for IPO in the near term have underperformed their peers in terms of EPS in FY22. Peer companies included in the chart are taken from DRHP documents where a company is required to disclose their listed peers. Market-cap weighted average EPS is taken for comparison.
Even though Mankind Pharma did better than the other four in terms of EPS, it is still lower than its peers’ average value. IndiaFirst Life Insurance is the only company to report a negative EPS.
Only IndiaFirst reports losses in FY22
Barring IndiaFirst Life Insurance, all companies in focus were profitable in FY22. Mankind Pharma leads the pack with a revenue of Rs 7,781.6 crore and a profit of Rs 1,453 crore. While Honasa Consumer reversed its losses and turned profitable in FY22, Allied Blenders reported a fall in net profit during the same period.
Bigger issues likely to open soon
While the first two months of 2023 saw small companies (SMEs) go public, the upcoming IPOs are more familiar names with bigger issue size. But the dates of these IPOs have not been declared yet. It will depend on the market and regulatory conditions. It is not yet clear if the 2022 trend of SME IPOs dominating the market would repeat or whether the headliners would steal the show.
Rajendra Naik, Managing Director of Centrum Capital, says factors like economic policies, geopolitical tensions, valuations, investor sentiment, and competition will dictate the IPO market in 2023.
You can find more upcoming IPOs here.
This analysis by Trendlyne is meant for investor education - to help understand companies and make informed investment decisions on their own. It should not be considered an investment recommendation.