IPO market: Optimistic about 2016, says V Jayasankar

Fund raising via IPOs in 2015 was the highest since 2010 and V Jayasankar, senior executive director and head of equity capital markets, Kotak Investment Banking, expects 2016 to be a much better year.There will be a very good mix of small and mid-sized IPOs, coupled with a few big ones in 2016, he told CNBC-TV18. And while 21 companies raised Rs 14000 crore via IPOs in 2015, Jayasankar says 2016 is likely to see a much larger IPO flow — higher than Rs 14000 crore.

He says the pipeline currently is across sectors such as consumer, IT, banking and financial services and lot of companies that are consumption plays.Below is the verbatim transcript of V Jayasankar's interview with Anuj Singhal and Ekta Batra on CNBC-TV18.Anuj: We had USD 17 billion of issuances in 2015, five year highs, in 2016 does it go up to USD 25-30 billion, are we looking at a healthy pipeline?A: 2015 has been a big year for the initial public offering (IPO) market and we expect 2016 to be even better. If you look at the pipeline currently, it is across some of the very interesting sectors like consumer, IT, banking financial services and a lot of the companies, which are essentially a play on the consumption story. So given this and given that we are seeing a structurally strong capital market for the next two-three years, I feel very optimistic about 2016.Ekta: Since I look at the healthcare space, I want to specifically quiz you about Dr Lal Pathlabs as well as Narayana Healthcare. Both the stocks have more of a concept story which was attached to it and hence there was no regard for the valuations that both these companies saw and in terms of the subscription that we saw and even for the listing that we saw for Dr Lal Pathlabs. Is that a theme that we can see play out for many more IPOs to come that yes, if it is a unique concept story, valuations will be disregarded?A: I can comment about Dr Lal Pathlabs since we are indirectly involved. We saw a very strong demand from both the foreign institutional investors (FIIs) as well as the domestic institutional investors (DIIs) for a simple reason, it is a very unique story in the healthcare space. What investors liked about Dr Lal Pathlabs was the fact that it was a strong consumer brand in the healthcare space, which is expected to grow probably as an industry at around 16 percent and Dr Lal Pathlabs was very strongly positioned to get a larger share of that growth.So as a result of that as well as the fact that the company's financial performance historically has been pretty strong with very good growth rates, strong return ratios. We saw investors willing to pay the kind of valuation that you ultimately saw and finally when you look at where the stock is trading, it is probably about 45-50 percent higher than where the IPO got priced. You are seeing a scarcity premium getting built into the overall valuation and we have seen in the past that when unique stories come to the market, often this scarcity premium gets built in and sustains over a longer-term.Anuj: Let us talk about 2016 pipeline, the big one that I will be watching out for would be the Vodafone IPO but what would be three-four big ones to watch out for?A: 2016, you are going to see a very good mix of medium and small size IPOs and perhaps a few large IPOs. Difficult to comment on individual companies because for compliance reasons -- I cannot talk about companies where we are working actively and the prospect is not yet filed with Securities and Exchange Board of India (SEBI) and there are companies that are still talking about doing IPO just like you are talking about Vodafone.So without getting into specific, what I can say is that 2016 is likely to see a much larger IPO flow as compared to about Rs 14,000 crore raised in 2015, our expectation is even bigger based on documents that are already filed with SEBI, there are probably about 20 documents. You see a good mix of companies raising well over 1,000 crore and a good mix of companies raising under Rs 1,000 crore.Anuj: What about start-ups and digital companies?A: Start-ups and digital companies particularly from the e-commerce space will take a longer time to come to the market because the first thing that any of the start-ups or e-commerce companies have to demonstrate for public markets is path to EBITDA profitability and all these companies are currently focused on market share, currently focused on customer acquisition, which is probably the right thing and private investors are very happy backing these companies so that they gained right share, gained the strong dominant positioning and therefore there is lot less focus on the EBITDA levels.So it will probably play out this way for some more time and therefore start-ups and e-commerce may take a little longer to come to the market. However, having said that there will be a couple of exceptions to this because there are companies which probably have achieved the right levels of EBITDA profitability.