IPO rush: DRHP filings zoom nearly five-fold to 145 in FY22

This was on account of companies rushing to take advantage of the favourable market sentiment towards IPOs triggered by various reasons

The number of draft red herring prospectus (DRHP) filed with market regulator Securities and Exchange Board of India (Sebi) jumped nearly five-fold to 145 in 2021-22 (FY22) compared to just 30 in the preceding financial year.

This was on account of companies rushing to take advantage of the favourable market sentiment towards initial public offerings (IPOs) triggered by an influx of new investors, surge in the secondary market and encouraging performance of newly-listed stocks.

In fact, the DRHPs filed during the just-concluded financial year was four times the previous 10-year average and highest since at least 2007-08, according to primary market tracker Prime Database.

Companies from new-age sectors such as fintech, online e-commerce and food-delivery tapped the market for the first time. The year saw companies from several unique sectors as well as traditional businesses file their offer documents. A large number of filings was on account of the push from private equity and venture capital (PE/VC) investors looking to exit their investments.

“We have seen new-age businesses as well as conventional businesses raise public money successfully. It truly indicates the diversity and the depth of our markets. Investors now understand businesses across stages, sectors and themes,’’ Mahavir Lunawat, managing director at Pantomath Capital.

Industry players said IPO filings were hit during pandemic-hit FY21 which somewhat inflated the number for FY22. While 145 companies filed their offer document, only 52 managed to launch their IPOs during the year. To be sure, several companies are still awaiting Sebi’s go-ahead to launch their IPOs. Meanwhile, some, who have already obtained Sebi’s nod, had to hold back their IPO plans due to a spike in volatility in the market during the March 2022 quarter.

According to Prime Database, over 54 companies, including Life Insurance Corporation (LIC), proposing to raise Rs 1.4 trillion are currently sitting on Sebi approval. Another 43 companies looking to raise about Rs 81,000 crore are awaiting Sebi approval. Out of these 97 companies, seven are new-age tech firms, which are looking to raise ₹30,000 crore.

Massive selloff by foreign portfolio investors (FPIs) due to US Federal Reserve’s hawkish pivot and Russia’s attack on Ukraine has delayed the listing plans for some of these companies.

The benchmark Sensex came off as much as 13 per cent from its 2022 highs in early March. This also slowed the IPO filing process. In January and February only 7 and 11 firms filed their DRHPs, respectively. The IPO filing activity once again picked up in March as markets staged a rebound.

S.Venkatraghavan, MD, Equirus said typically DRHP filings pick in March as that’s the cutoff month to file DRHPs with September financials.

“If companies miss the March 31 deadline, then the September audit is not valid. Then they have to do another audit. However, when it comes to IPO launches, March was a bit of a wait because of the volatility in the markets,” he said.

However, with markets bouncing back 14 per cent from their March lows and FPI outflows stemming, IPOs and DRHP filings could once again gain momentum, say industry players.