IPO market this year may beat 2021 tally with 89 issues aiming to raise Rs 1.4 lakh crore

A few fund managers are upbeat on IPOs saying that they have helped them generate alpha over the last few years.

Though the markets have been scaling new highs, alpha generation in the secondary market has become a demanding task. Anoop Bhaskar of IDFC MF said at Moneycontrol’s Mutual Fund Summit that "In the last few years, markets have become very flat. It is not easy to find an HDFC Bank as we did in 2008." But in the last few years alpha generation has come through IPOs, he said.

Also Read | Moneycontrol Mutual Fund Summit | Investor behaviour will be key to alpha generation: Fund managers

However, some investors now seem to hesitate around investing in IPO as recently listed companies’ shares have been trading below their issue price.

“Looking at the price movement in newly listed stocks, the Securities Exchange Board of India (SEBI) came up with a consultation paper that it will be involved in the valuation process while IPOs. This step has also been a dampener,” said Nirav Karkera, head of Fisdom.

The head of investment banking at a brokerage firm said the likes of Nykaa, Zomato and PB Fintech have significantly eroded shareholders’ wealth and unless the prices of recently listed companies are back to their IPO levels, the concerns would linger.

Meanwhile, reports said that boAt has deferred its public share sale plans and raised $60 million from private investors instead amid continuing concerns over the volatile stock market and even Snapdeal has reportedly decided to pull the plug on its IPO citing “prevailing market conditions”. While Ola which has turned profitable might look at going for an IPO this year though a final decision has not been taken.

Besides, nothing official yet, but the SoftBank Group-backed food delivery company Swiggy is also looking to file offer documents with SEBI. Swiggy plans to raise around $1 billion through an IPO in 2023, as per reports.

Also Read | About 75% of IPOs listed in 2022 are set to end the year in green

Here are some IPOs that the market is looking forward to in 2023:

OYO

Oravel Stays, which owns the OYO brand, had filed its draft red herring prospectus (DRHP) in October 2021 and planned to launch its IPO in 2022 but postponed it due to volatility and bearish market sentiment. The hospitality start-up is now awaiting SEBI’s nod to bring out an IPO in 2023. Its estimated size is Rs 8,430 crore.

But despite all the excitement, the company has highlighted two risks that might make investors rethink before investing in OYO’s IPO.

The hospitality start-up has incurred net losses each year since incorporation and its ability to achieve profitability may be delayed, the company pointed out. Also, it may not continue to grow at historical rates and may face difficulties in executing expansion plans and implementing growth strategies.

OYO started as a hotel aggregator and used to lease some rooms and sell them under its brand name but it changed its business model to a franchise model soon, asking hotels to operate as a franchise and sell their rooms to customers at competitive prices.

The hospitality chain’s adjusted EBITDA grew eight times to Rs 56 crore in the second quarter of this fiscal, against Rs 7 crore in the first quarter. Despite the sharp uptick in EBIDTA, the company posted a net loss of Rs 333 crore in the second quarter of FY23. However, the loss has reduced from Rs 414 crore in the first quarter of 2022-23.

Its net cash used in operating activities was negative at Rs (2,432.6) crore as of fiscal 2021.

Fabindia

The issue size of the famous clothing brand Fabindia is Rs 4,000 crore. Its brands like ‘Fabindia’ and ‘Organic India’ are well recognised in India.

In an interview with the Free Press Journal, the company’s Managing Director Viney Singh said the launch timing will be decided after taking into consideration various factors such as relevant statutory approvals, stock market conditions and feedback from investors and intermediaries, among others.

Its primary business verticals are apparel and accessories, home and lifestyle, personal care, and organic food. In addition to it, Fabindia also offers healthy dining with regionally inspired foods and beverages through its subsidiary, FabCafe. Fabindia holds a 68.46 percent stake in FabCafe.

Fabindia posted a revenue of Rs 1,392 crore for the year ended March 2022 with a net loss of Rs 39 crore, the Economic Times said citing documents filed with the Registrar of Companies and sourced from business intelligence firm AltInfo. During FY21, the ethnic retailer posted a net loss of Rs 117 crore with a revenue of Rs 1,081 crore, its worst performance in two decades.

The company in its DRHP explained that during the Covid pandemic, its operating expenses did not decrease at the same rate as revenues, hitting sales, profitability and growth rates.

Many of the company’s expenses are less variable in nature and may not correlate to changes in revenues, such as rent expenses, depreciation, employee benefit expenses and other costs associated with operating and maintaining stores and FabCafes. Rental expenses and leave and licence fees account for a significant portion of Fabindia’s cash outflows due to which it renegotiated rental arrangements with mall developers, landlords and lessors during the pandemic.

Fabindia is a very well-known brand which will also help in generating strong demand for its shares in the IPO.

Yatra Online

One of the recent companies to receive the capital market regulator’s clearance is Yatra Online IPO with an estimated size of Rs 750 crore.

The company is India’s largest corporate travel services provider and the second largest online travel company in India among key online travel aggregators (OTAs), as per gross booking revenue and operating revenue for fiscal 2020, Yatra Online said in its DRHP citing CRISIL. It also has the largest number of hotel and accommodation tie-ups among key OTAs, as on October 29, 2021, the company added.

Yatra reported a nearly 60 percent decline in its loss for FY22 to Rs 48.2 crore. With a recovery in domestic travel demand, the company saw its revenue soar 56.5 percent to Rs 198.9 crore during the fiscal. It generates revenue through two main lines of business: air ticketing and hotels and packages.

Considering the competition from goibibo.com, cleartip.com and makemytrip.com among others, one of the risks the company flagged in its DRHP was that the Indian travel industry is highly competitive and that it might not be able to effectively compete in the future.

Yatra plans to utilise the net proceeds from the issue for strategic investments, acquisitions and inorganic growth and investment in customer acquisition, other organic growth initiatives and general corporate purposes.

Also Read | Infosys co-founder Raghavan, Carlyle-backed Indegene to float Rs 3,200-crore IPO

Mankind Pharma

The estimated issue amount of the company’s IPO is Rs 5,500 crore, which could be one of the largest ever public issues by a domestic pharma company.

Besides branded generic drugs, the company’s prominent brands include Prega-News pregnancy testing kits, Manforce condoms, Gas-O-Fast ayurvedic antacids and acne-treating medicine AcneStar.

“We are heavily focused on the domestic Indian market, and have historically derived a substantial portion of our revenue from India,” the company said in its DRHP. After India, its key markets are the US, Bangladesh, Sri Lanka and Nepal.

The company’s revenue from operations stood at Rs 7,781.5 crore in the year ended March 31, 2022, as compared to Rs 6,214.4 crore in the previous fiscal.

The pharmaceutical company’s restated net profit stood at Rs 1,452.9 crore from Rs 1,293.0 crore in the corresponding period last year. Meanwhile, the company’s EBITDA rose to Rs 2,003.8 crore in the fiscal ended March 2022 from Rs 1,659.8 crore a year ago.

Ixigo

Le Travenues Technology is the parent company of the online travel portal Ixigo. The issue size of Le Travenues Technology IPO is expected to be Rs 1,600 crore.

“In the first quarter of FY23, we did Rs 8.7 crore net profit and we did positive cash flow as well that quarter. So going forward, this funding is more to double down on growth in strategic areas,” Aloke Bajpai, Group Chief Executive Officer and Co-founder, told BQ Prime. For the year ended FY22, its revenue from operations rose to Rs 379.6 crore from Rs 135.6 crore in the previous year, primarily driven by a significant 186.66 percent increase in ticketing revenue and an 81 percent jump in advertisement revenue. For the year ended March 2022, it posted a Rs 21.1 crore loss as against a profit of Rs 7.53 crore a year ago. The company’s recent acquisitions, Confirm Tkt and AbhiBus, are also playing out well, he added.

Launched in 2007, Ixigo is an online travel technology company focused on enabling Indian travellers to plan, book, and manage their trips across rail, air, buses and hotels.

Tata Play

Tata Play, formerly Tata Sky, has filed its offer document with the capital market regulator but is yet to get a clearance. The estimated size is Rs 2,500 crore.

Walt Disney Co is looking to offload its entire 29.8 percent stake during the proposed IPO, LiveMint had reported.

Disney inherited the stake in Tata Play when it acquired the entertainment business of 21st Century Fox from Rupert Murdoch. In 2019, it started internal discussions to exit the Indian company but IPO plans kept getting deferred for one or the other reason, the report stated.

Baytree Investments (Mauritius), a unit of Temasek Capital, which had acquired a 10 percent stake in Tata Play in 2008, is likely to exit as well. Tata Group owns the remaining 60.2 percent stake in Tata Play.

As of June 30, 2022, Tata Play had 22 million paid subscribers. In FY22, the company posted a revenue of Rs 4,741 crore and a net profit of Rs 68.6 crore.

Kotak Mahindra Capital, Citi, Morgan Stanley, IIFL and Bank of America have been hired as bankers while Cyril Amarchand Mangaldas will advise the company on the IPO and subsequent listing.

Aadhar Housing Finance

Blackstone-backed Aadhar Housing Finance filed its draft papers with SEBI on January 24, 2021, and got a green signal on May 5, 2022.

Its issue size is Rs 7,300 crore, the biggest among the IPOs that have got SEBI nod up to December 12.

Blackstone-backed BCP Topco holds a 98.72 percent stake in the housing financier and plans to raise Rs 5,800 crore by paring its controlling stake.

Aadhar Housing Finance is one of the largest housing finance companies focused on the low-income housing segment in India in terms of assets under management, as of March 31, 2021. The company posted a total revenue from operations of Rs 1,692.61 crore for the year ended March 31, 2022, from the year ago’s Rs 1,549.72 crore, while the profit after tax rose to Rs 444.65 crore from Rs 339.97 crore the year ago. The overall gross non-performing assets stood at 1.46 percent of assets under management as of March 31, 2022, as against 1.07 percent in FY2021 while its collection efficiencies post-September 2021 have been 95-100 percent for housing loans.

NIM (net interest margin) increased to 5.55 percent in FY22 from 4.70 percent in FY21 due to a decline in the cost of borrowings with a minimal decline in the yield on advances, as per CARE Ratings.

The company offers a range of mortgage-related loan products, including loans for residential property purchase and construction, home improvement and extension loans, and loans for commercial property construction and acquisition.

The financier said it will use the IPO proceeds to boost its Tier I capital base to meet its future capital needs. As of September 30 2020, Aadhar’s CRAR Tier I capital was 45.87 percent.