Prabhat Dairy IPO sails through despite market turmoil

Weak demand forced firm to trim issue size, price; question mark over further issuance in the short term

Prabhat Dairy’s initial public offering (IPO) of equity managed to scrape through, despite weakness in the secondary market and an exodus of foreign investors.

The company, however, had to scale down the offer for sale (OFS) component, due to lack of demand amid a sharp 2.8 per cent fall in the benchmark indices on Friday.

The thin demand for IPOs, amid market volatility, has raised doubts for future IPOs in the short term. Prabhat Dairy’s comprised 26.5 million (up to Rs 300 crore) of new shares and another 14.7 million of OFS from existing investors. By provisional exchange data, the issue saw bids of 30.9 m shares or 75 per cent of the total of 41.2 mn on offer.

Investment bankers handling the IPO said the company had been successful in raising fresh capital of Rs 300 crore. However, the secondary share sale component was not fully covered and, hence, existing investors who wanted to sell through the IPO would be unable to do so. Nirmal Family Trust, the promoters, along with private equity investors Rabo India PE, The Real Trust and DFI Proparco, were looking to sell part of their shareholding in the company.

“In this difficult environment, we have managed to close the IPO successfully.

A lot of investors wanted to invest in the IPO but didn’t due to the adverse market conditions,” said Vikas Khemani, president and head, wholesale capital markets, Edelweiss Securities. Edelweiss, Macquarie Capital Securities and SBI Capital Markets were handling the Prabhat IPO.

Originally, the offer was to close on Tuesday. Poor demand forced the company to extend the closing date till Friday and cut the issue price. The earlier price band was Rs 140-147 a share, later cut to Rs 115-126. The Sensex had dropped 2.2 per cent or 586 points on Tuesday, when the IPO was to close. The index fell by a similar amount on Friday.

Last week, when the company was to raise capital from anchor investors, the market dropped 6.5 per cent. Eventually, Prabhat Dairy had to do away with anchor allotment.

From exchange data, the qualified institutional buyer (QIB) segment of the IPO remained under-subscribed, at 88 per cent. So did the retail portion at 30 per cent. The high net worth individual portion saw 1.41 times the demand.

Prabhat’s was the sixth IPO to hit the market over the past month, during which the market fell nearly eight per cent. Interestingly, all six IPOs managed to go through, although investor demand has been thin.

Investment bankers said further issuance will have to take a pause till market conditions stabilise and volatility is under control. “No issuer or banker would want to do a transaction in such market conditions. The market conditions have to turn stable before we could see more IPOs,” said a banker, asking not to be named.

About two dozen companies have Sebi approval to launch IPOs and about 15 have hit the market so far in 2015.