IPO issue size in fiscal year highest in past two decades: India ratings


Initial public offerings (IPOs) for this fiscal year reached a significant level after FY18 in terms of issue size, with four months remaining in the fiscal year, according to a report by India Ratings and Research.

The strong IPO issues during FY22 in a dynamic stock market bode well for the country’s economic recovery. In addition, fundraising by entities will not have a significant impact on their level of debt, as the objective of fundraising is largely to unlock the value proposition rather than create new ones. investments, he added.

From April to November 2021, the number of IPOs for FY 22 stood at 71, rising to 85,600 crore, compared to 27,200 crore raised by 56 companies in FY 21.

Huge global liquidity due to the peak of fiscal and monetary expansion, strong investor appetite, favorable financial market and strong recovery in trading conditions boosted the IPO market during FY22. With the announcement of Life Insurance Corporation of India’s IPO issue of 1,000,000 crore, the total IPO size could cross ₹ 2,000,000 crore by year-end, a record.

The latest five-year industry trend highlights the significant jump in retail IPOs. It includes new age tech driven companies such as food aggregator Zomato Ltd, fashion retail company Nykaa, online insurance broker Policy Bazaar Ltd, car classifieds platform CarTrade .com and CAMS Ltd. The top 25 issues in the past three years were worth 83,300 crore, of which new age tech-focused companies made up ₹ 41,800 crore.

According to the rating agency, the increase in issuance by new-age tech-focused companies compared to traditional companies has more to do with value creation and brand recognition than the need for long-term investments. term or deleveraging.

Start-up IPO

Accompanied by a buoyant stock market, favorable policies have prompted start-ups to issue IPOs this year. In March 2021, the Securities and Exchange Board of India reduced the time period during which start-up investors must hold 25% of pre-issue capital to one year, down from two years earlier. The amended regulations, which previously prohibited companies that went public from making discretionary allocations, allow them to allocate up to 60% of the size of the IPO issue to an eligible investor subject to a period. 30-day block on these shares. .

A few automotive components players also resorted to IPOs during FY22 after five consecutive years of absence, to finance working capital requirements and loan repayments.

Within the healthcare industry, major issues were undertaken in order to resume investing activities and reduce borrowing.

The FMCG sector has also seen a steady increase in IPO issuance over the past five years and the recent increase can be attributed to international brands such as Sapphire Foods Ltd and Devyani International Ltd who have the intends to create a network of retail stores in India.

Further analysis suggests that the targets behind IPO issues (top three), according to the issue prospectus, by the top 25 companies (excluding financial services and banks) by issue size over the past three years were to spend for business purposes (26 per cent of issuers), financing of investments (19%), repayment of existing loans (19%), implementation of the offer to sell (11%). The intangible benefits of listing, such as brand enhancement and recognitions, were also among the main drivers.

The rating agency believes that the money raised through the IPO has a limited impact on leverage, as most entities have issued shares to unlock value. The agency analyzed the top 25 companies that launched IPOs during fiscal year FY18-FY20; the total amount of corporate debt (long term and short term) did not necessarily decline after IPO issues.

The large number of issues in terms of issue size over the past three years, which amount to ₹ 1.29 lakh crore, is not a harbinger of deleveraging as well as capital spending . Its use is a controllable key, he said.


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