Adlabs IPO to test feeble primary market

Lukewarm response to two IPOs in 2015 has raised questions over investor participation

Investors’ response to the Rs 467-crore initial public offering (IPO) of amusement park operator Adlabs Entertainment will be keenly watched by market participants to gauge the revival of the primary market.

The buoyancy in the secondary market has, so far, done little good to the primary market, as capital raised through IPOs in the previous year has been the lowest in a decade.

Moreover, the lukewarm response to the two IPOs floated in 2015 have raised a question mark over the fortunes of at least a dozen companies waiting in the wings to launch IPOs.

Last week, cable and internet provider Ortel Communications failed to garner full subscription for its Rs 240-crore IPO, forcing private equity entity New Silk Route to cut the number of shares it had put on the block. The fate of edible oil firm NCML’s IPO was even worse, as the issue failed to sail through despite bringing down its issue price.

Adlabs Entertainment, whose IPO will remain open between March 10 and March 12, will be the biggest issue since Just Dial’s Rs 900-crore issue back in May 2013.

“Retail investors stayed away from Ortel, as they didn’t completely understand the story. Adlabs is a consumer story and, hence, we expect interest to be good," said V Jayasankar, head of equity capital markets, Kotak Investment Banking, banker for both the Ortel and Adlabs issues.

Investment bankers say a slew of medium-sized IPOs are expected to come to the market over the next couple of months. Some of the companies next in line for IPOs include Sadbhav Infrastructure, Inox Wind, CL Educate, and Manpasand Beverages.

“Even though the stock markets are booming, the response to the recent issues has sent a signal that investors are mindful of valuations and quality of the companies. Having burnt their fingers in the past years, investors continue to remain wary of IPOs,” said Arun Kejriwal, founder of advisory firm Kris Research.

Experts say there is a lot of money waiting to be deployed. However, investors are waiting for the right opportunity.

“You will see good applications of share sales in large-sized entities such as State Bank of India,” said Kejriwal.

India’s largest bank is likely to hit the market with a Rs 15,000 crore follow-on public offer in April.