 "IPO")
Companies are pushing ahead with their initial public offerings (IPOs) by compromising on valuations and reducing their issue sizes to attract investors, notwithstanding the prevailing volatile market conditions.
Ajax Engineering, whose IPO opens on Monday, has cut the number of shares on offer to 20.18 million from 22.88 million when it filed its draft red herring prospectus (DRHP) in October. Market players revealed that the company initially aimed to raise Rs 2,000 crore but had to settle for a lower valuation. Similarly, Carlyle Group-owned Hexaware has reduced its IPO size to Rs 8,750 crore from Rs 9,950 crore when it filed its DRHP in September.
This trend is expected to continue with upcoming IPOs.
Schloss Bangalore, which owns and operates ‘The Leela’ brand of hotels, may announce its IPO plans next week. The company is expected to cut its fundraising target by more than 10 per cent from the Rs 5,000 crore it initially planned to raise when it filed its offer documents in September 2024, said people privy to the development. Bankers attribute these adjustments to the market decline since October 2024 due to slowing corporate earnings, and foreign portfolio investor (FPI) outflows. These factors have forced companies to reassess their valuations.
“When the filings were made in 2024, earnings expectations were high, and valuations aligned with those estimates. However, the third-quarter earnings of many listed companies fell short, impacting the valuations of IPO-bound firms. When listed peers miss earnings estimates, it inevitably affects the pricing of upcoming IPOs,” said Deepak Kaushik, EVP and Group Head – ECM at SBI Capital Markets.
When asked why companies aren’t deferring their IPO plans, Kaushik noted that even with reduced issue sizes, firms were securing better valuations than they could have hoped for a few years ago due to an overall market rally.
“Even if a company reduces its issue size, leaving more value for investors, and the stock performs well post-listing, the firm stands to gain as its market capitalisation rises. They can then dilute the remaining portion at a higher price to meet minimum public shareholding norms,” Kaushik added.
He also pointed out that many of these firms were backed by private equity (PE) investors, who were seeking exits.
“We’re not seeing drastic reductions — likely around 15-20 per cent, which aligns with the market correction. There’s a lot of uncertainty in the market right now,” Kaushik said.
Bankers highlighted the growing influence of domestic institutional investors, particularly mutual funds, in shaping IPO pricing.
“It’s more or less a buyer’s market now. For issues ranging from Rs 1,000 crore to Rs 4,000 crore, domestic mutual funds dominate the anchor book. They’ve become very selective, driving down issue sizes and prices. For larger issues, foreign investors also participate, but the bargaining power lies with domestic players,” said Pranjal Srivastava, Partner — Investment Banking at Centrum Capital.
Bankers expect companies to compromise on valuations to ensure their IPOs succeed.
“Given the market volatility, valuations filed six months ago are no longer relevant. Quality IPOs will still happen, but valuations must be reasonable, and issue sizes may need to be trimmed,” Srivastava added.
Hexaware set for D-Street re-entry
Hexaware’s Rs 8,750 crore initial public offering (IPO) will be open from February 12 to 14, marking the software exporter’s return to the Dalal Street after nearly five years. This issue size is the largest ever for an IT services company in India. The IPO price band is set at Rs 674-708 per share, valuing Hexaware at Rs 43,025 crore ($4.9 billion) at the upper end of the range. The IPO is entirely secondary sale by the US-based Carlyle Group, which will reduce its stake from 95 per cent to 74.1 per cent. Hexaware had voluntarily delisted from Indian stock exchanges in November 2020.
