SREI Equipment Finance April 2018 NCD offer review

Published on Saturday, April 21, 2018 by Dilip Davda | Modified on Sunday, November 10, 2019

With secondary market making new all-time highs and luring primary market to turn active has brought some rewards for investors and we have witnessed many new surprises in recent times. As per information compiled from the reports of Prime Data Base, the following table will give insight for the developments on primary market front for the last two fiscals.

From the above table one can notice that FY17-18 has turned out to be a historic year for primary market with 200 IPOs mobilizing whooping Rs 83804.81 crore from the markets. And the show was stolen by the SME IPOs that out past on all fronts to create a new record ever since SME platform started in fiscal 2011-12 with an issue.

What we witnessed in last one year is that due to half-yearly result mandate month of September 17 and March 18 had 33 (Rs 451.01 cr.) and 29 (Rs 618.82 cr.)SME IPOs respectively and coupled with 7 and 8 Mainboard IPOs, we had 40 and 37 IPOs for the said months.

But when we marked just 11 SME IPOs to mobilize Rs 129.45 crore for April 2018 with no Main Board IPOs, it really raised eyebrows as in February and March few mainboard IPOs started their issue process but did not dare to enter the capital market in the first month of Fiscal 208-19. Some of them were CMS Info, Prince Pipes, Seven Islands. As per reports Route Mobile, Lodha Developers, Rail Vikas Nigam, Crystal Crop, Mazgaon Dock, IRCON, Genius Consultants, Varroc etc filed their DRHP and are planning to enter primary market in the first quarter of Fiscal 19.

According to market sources, mainboard IPOs that came in the month of March 2018 had poor listing that and once again brought greedy pricing critics on the surface. No doubt Bandhan Bank did somewhat better with good response to IPO as well as better opening on the day of listing. The odd that surprised one and all was Lemon Tree that garnered little over 1-time subscription but opened on a robust note. PSU offers like Bharat Dynamics, HAL, Midhani just managed to close issues with support from LIC and met with poor openings. Off late we marked some surprise swing on the counter of Midhani following encouraging reports for the sector in general and the company in particular. Other IPOs like Sandhar, Karda Constructions managed to sail through. On SME front, scrip that did well on debut day included AVG Logistics, Vera Synth, Power Instruments, MMP Ind, SSIDC, Orissa Bengal etc. IPO of ICICI Securities met with poor response and could garner only around 78% subscription and was closed the subscribed fund of around Rs 3520 crore against issue size of Rs 4017 crore. Market observers raised a million-dollar question for this debacle as the IPO from national brand belonging to ICICI group failed to collect the desired subscription and a small SME IPO of Jhandewalas Foods got subscription worth Rs 4233 crore against issue size of Rs 16.01 crore. Few SME IPOs got over 160 times subscription in a fancy time, which appears to have been vanished now.

For reduced fancy of SME IPOs is attributed to new listing norms with five per cent circuit on discovered listing price under ST group coupled with greedy pricing as of late we have seen promoters of SME IPOs asking for treatment like mainboard IPOs for higher P/E ratios on pricing point.

Secondly, as SME IPOs still enjoy the freedom of half-yearly results announcement, longer duration for info on company's financial data keeps many counters dud post listing after initial hiccups. For this, market observers feel that if they want to treat them at par with mainboard IPOs then they should fall in line for compliance, corporate governance and announce quarterly results to increase frequency of financial updates to keep interest of the investors live on Q-o-Q basis rather than half-yearly basis.

One should not forget that SME IPOs have entry barriers not only at the time of subscribing it but also for trading as one has to trade for same lost as a minimum application lot prescribed for such companies based on price point of view.

This week we have come across the announcement of mainboard IPO of Indostar Capital to mobilize Rs 2000 crore. This IPO is set to open on 09.05.18 and will soon be followed by HDFC Asset Management IPO. As per market sources even Prince Pipe, Seven Islands may follow the footprints soon thereafter. Thus mainboards IPO may turn active from this month after a lull for the first month of April 2018 marking their absence. We already have two SME IPos for the first fortnight of May 2018 for fund mobilization of Rs 68.65 crore.

As informed by primary market observers, lead five managers of SME IPOs have mandates ranging from 55 to 60 IPOs and other 60 merchant bankers are having on an average 3 mandates, thus if we total all these then there are around 525 SME IPOs that will enter the market before December 2018. Thus the primary market is set for hectic activities going forward. On mainboard IPO front too around 25 to 30 IPOs may come for fund mobilization before December 2018, but for the secondary market, behaviours will be at the centre stage. It has been the history that when primary market becomes hectic, secondary market suffers a setback for a while due to shift of funds to new issue market, but when secondary market is in pink of health, we find less activities in the primary market.

However, I would like to quote Mr Deepak Parekh, who at the time of media meet for HDFC Life issue openly said 'Investors have better option for their short term investment rewards in the form of secondary market where more than 2000 scrip are trading usually, and such class should not go for IPO subscription as IPOs are always meant for long term investments. Day trade or BTST (Buy Today Sell Tomorrow) mode of secondary market operations should suffice their needs. Primary market investment option should be used by long term investors only as they have to keep patients for rewards from newly listed corporate as they have to perform and live up to confidence.'

Primary market intermediaries are always worried about such short term investor's masses as they play a spoilsport on listing scene of new entrants. It is opined that to curb fancy listings, new listing norms with ST group for SME IPO has been implemented from April 2018 wherein, upper and lower circuits on the debut day is capped at 5% of price discovery. SEBI wants only well informed long term investors to park their money in SME IPOs and hence the lot size is high.

A section of primary market is opining that once 2019 election is officially announced, it will bring a standstill scene for IPOs as no mainboard candidate will dare to come with mega offer. Considering such possibility most of mega IPOs will try to enter the market before August 2018 and thus we might find rush for mainboard IPOs in coming months. Indostar is breaking the ice for mainboard stream and is likely to be followed by HDFC Asset Management. Let us see who else is joining the bandwagon thereafter.

But this is sure and of prime importance, whether it is mainboard IPO or SME IPO, reasonable pricing will be the main aspect as it will be a win-win for all. If greedy pricing continues, it will damage the primary market sentiment, which is back to square one for a while. SME IPO candidates may follow half-yearly result norms for filing of offer documents but should follow quarterly results announcement voluntarily post listings to keep interest of investors live on Q-o-Q basis. Let us hope that primary market comes out of dilemma and sets new records for this fiscal.