Inflation, war force companies to shrink IPOs
MUMBAI: Companies are trimming their initial public offers (IPOs) to align with challenging market conditions. Adani Wilmar, LIC, Delhivery and now Paradeep Phosphates will launch an IPO at a reduced size. The fertiliser maker has slashed its IPO by 30% to Rs 1,500 crore from an estimated Rs 2,150 crore earlier.
While companies are pressing ahead with their IPOs, they are forced to raise less money because of constrained investor appetite linked to inflation, interest rates and geopolitical situation, among other factors. Russia’s invasion of Ukraine has been weighing on demand with foreign portfolio investors net withdrawing about Rs 75,000 crore from Indian markets since the war started.
“Companies reduce their IPO sizes because there is lower investor demand than anticipated,” said Prime Database MD Pranav Haldea. An investment banker said the downward revision is mainly seen in large-ticket IPOs and valuation expectations too are moderated accordingly.
Companies that are gearing up to launch less than Rs 1,000-crore IPOs this month, however, have no plans to trim their target. The IPO consists of two components — a fresh issuance of shares (wherein money flows into the company) and an offer for sale (or OFS, where existing shareholders sell their stakes in the company).
In the case of LIC, its IPO is entirely an OFS and the government cut the issue size to Rs 21,000 crore from upwards of Rs 60,000 crore. Paradeep Phosphates has trimmed both the fresh issue (to Rs 1,004 crore from Rs 1,255 crore) and OFS (to around Rs 500 crore from Rs 895 crore).
“Since IPO process is fairly laborious, companies that have received Sebi approval would prefer to launch and get listed with a lower issue size based on market appetite, instead of recommencing entire process,” said former JP Morgan India director and partner of RippleWave Equity Advisors, Mehul Savla.