Polymer pipes and fittings manufacturer Prince Pipes and Fittings will make a debut on the exchanges on December 30 after having finalised the issue price at Rs 178 per share.
The Rs 500-crore IPO did not receive strong subscription, as it was subscribed only 2.21 times from December 18 to December 20, which was far lower compared to recent IPOs. The reserved portion of retail investors was subscribed at 1.89 times, and that of QIBs at 3.54 times and non-institutional investors at 1.21 times.
Considering the IPO subscription, outstanding litigations, and low market share in a competitive industry, experts feel the listing could be at a discount to issue price.
Even the grey market premium suggests the listing may be at a discount, sources told Moneycontrol.
"There are concerns over outstanding litigations of around Rs 900 crore and pledged shares of promoters (35 percent of total equity share capital) and so, the IPO did not cheer investors much. Therefore, we believe the share should list at a discount of 4-5 percent i.e, a reduction of Rs 8-10 per share," Manali Bhatia of Rudra Shares and Stock Brokers told Moneycontrol.
The company, in its RHP filed with SEBI for its IPO, said, "We cannot assure you that an adverse order in relation to the claim will not be passed against two of our Promoters, Jayant Shamji Chheda, who is also our Chairman and Managing Director, and Heena Parag Chheda, for which they may be jointly and severally be subjected to pay damages to the full extent as claimed by Montana, i.e., up to Rs 904.64 crore, along with applicable interest, nor can we assure you that they will not be held liable pursuant to the complaint, which may result in punishment under the relevant provisions of applicable criminal laws, including imprisonment and/or fine."
Given below an elaborate statement made by the company in relation to the Aditya Developers case, as mentioned its RHP:
Montana Developers Private Limited initiated arbitration proceedings against M/s Aditya Developers and its partners, including Jayant Shamji Chheda and Heena Parag Chheda, in relation to a joint venture agreement dated December 30, 2010, entered into between the Montana and Aditya (JV Agreement).
Montana Developers filed a statement of claim dated November 30, 2013 before the appointed arbitrator, seeking (i) specific performance of all the obligations under the JV Agreement, along with damages from Aditya and its partners for an amount of Rs 545.11 crore, or (ii) in the alternative, to (i) above, specific performance of such part of the JV Agreement which can be specifically performed as per the opinion of the arbitration tribunal, along with damages from the Aditya and its partners for an amount of Rs 739.48 crore, or (iii) if the arbitration tribunal cannot grant specific performance of the JV Agreement, then, damages amounting to Rs 904.64 crore, in each case along with interest at the rate of 27 percent per annum to be paid by the Aditya and its partners.
Aditya and its partners filed its written statement and counter claim dated January 15, 2014 refuting the claim on the basis of a letter from Montana, countersigned by two of the partners of Aditya on behalf of Aditya, mutually terminating the JV Agreement. Montana, in its statement of claim dated November 30, 2013 and rejoinder dated February 18, 2014, denied the execution of the said letter. The matter is currently pending. We cannot quantify the exact financial liability, if any, that would be incurred by our Promoters following the conclusion of this litigation.
Jayant Shamji Chheda and Heena Parag Chheda each hold a 10 percent share of profit and losses as partners of Aditya.
Prashanth Tapse, AVP Research, Mehta Equities also said looking at the subdued subscription level, which was below market expectations, the expected listing can be with a discount of Rs 15-20 to the issue price of Rs 178.
"Discount listing can be reasoned due to Prince Pipes being in a highly fragmented and competitive industry with just low single digit market share not giving any pricing power in the hands of company," he added.
Before the issue opened on December 18, Umesh Mehta, Head of Research at Samco Securities had said the company didn't have any powerful moat compared to its peers.
"It doesn’t have any added competitive advantage when it comes to its product portfolio. Additionally, it has a high debt to equity ratio while its competitors operate with negligible debt and EBITDA margins (12.2 percent) is the least amongst its peers (15-20 percent). The company has not disclosed Q2 FY20 quarterly performance in their RHP filed with RoC," he added.
"Also, the company along with its book runners and lead managers have received complaints in relation to non-disclosure of certain litigations in the DRHP filed with SEBI," Umesh Mehta said.
The promoters have pledged 35 percent of the total equity share capital with Express Infra Projects LLP, which is in the realty space. However, the management has communicated that they will eventually release the pledge by paying money raised through the IPO.
The public issue comprised of fresh issue of Rs 250 crore and offer for sale of Rs 250 crore by promoters.
The fresh issue proceeds will be used towards repayment of certain outstanding loans, financing the project cost towards establishment of a new manufacturing facility, and upgradation of equipment at manufacturing facilities.
The promoter selling shareholders intend to use the proceeds of the offer for sale towards repayment of the outstanding bonds issued by Express Infra Projects LLP.Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.