Small IPOs have a smooth sail

Small size, better pricing behind huge investor interest in such issues.

At a time when follow-on public offers (FPOs) of Rural Electrification Corporation and NTPC sailed through with difficulty, some of the smaller issues received good response from investors.

The issues — from Man Infraconstruction, ARSS Infrastructure Projects, Jubilant Foodworks and Infinite Computers — were subscribed 40-60 times. These had hit the market along with FPOs of NTPC and REC at a time the secondary markets were falling.
 

SMALL IS BEAUTIFUL Subscription details
Company	Issue size (Rs crore)	Subscription  (times)	Total bids value (Rs crore)
Jubilant Foodworks	328.70	31.11	10226.30
Man Infraconstruction	141.60	62.52	8854.30
Infinite computers	189.80	43.21	8199.10
ARSS Infrastructure Projects	103.00	47.62	4904.86
D B Realty	1500.00	2.95	4425.00
Hathway Cable	546.00	1.35	737.10
(Source: BSE and NSE)

Investment bankers and primary market experts said the main reason for such a huge response to these issues was their small size. Also, these were not follow-on issues. “In an initial public offer (IPO), there is hope of listing gains,” said Prithvi Haldea, managing director, Prime Database. He said in an FPO, investors had the market price for reference.

Another reason is that shares in these issues were not sold though the French auction system and had a price band. In a French auction, the highest bidder gets the desired number of shares, while in a price band system, the bids have to be within the band.

However, ICICI Securities Managing Director and CEO Madhabi Puri Buch had defended the French auction at the time of announcing REC’s FPO. She said questions were raised as the system was tested when the market was volatile. “There are two things that happened simultaneously... What should be rightly attributed to the market shouldn't be attributed to the process,” she said. But Haldea said oversubscription was not the only indicator of a good listing price. “Some IPOs have not done well even after huge subscription levels,” he said.

IPOs of NHPC, Adani Power and Pipav Shipyard had recorded huge subscriptions but failed to list at a premium. Some of these are still trading below their issue prices.

However, some investment bankers associated with small IPOs said these companies left something for investors on the table (in the form of listing gains). Some of the companies are also unique or have good business models.