Small-sized IPOs have it easy

Small is beautiful and that appears to be the mantra borrowed by companies to stay in line with the current market conditions. The recent past has been no less than a roller-coaster ride with the primary market finding the going difficult.

The secondary market, which has a bearing on the IPO market, has been reeling under the backlash of the US subprime mortgage market crisis. While this may have proved to be a deterrent for the larger-sized IPOs, it appears to be godsend for companies looking to raise very small sums via public issues.

Merchant bankers said most of the small-sized issues are fixed-price IPOs relying very little on foreign money and hence looked upon as safe bets during such times. Incidentally, industry sources believe the fate of the Bangalore-based real estate development major Puravankara Projects has made companies rethink on the respective issue sizes.

The construction company was not able to garner sufficient investor interest for its recently-concluded public offering. With the issue being revised, the final issue price has been fixed at the lower end of the price band at Rs 400.

“Though, there is volatility, the market is conducive for small-sized issues”, said Ashika Capital assistant vice president Hari Surya. “Fixed-price issues are good, the only thing being that they have to rely fully on HNIs and retail investors to get sufficiently subscribed. Being fixed-price issues, there is very minimal chance of over-valuation of IPOs,” he added.

Interestingly, the coming days will witness Allied Computers International (Asia) entering the capital market with a fixed-price issue to raise Rs 6 crore. And that is not all. According to Prime Database, Circuit Systems and Saamya Biotech are also to come out with their IPOs to raise Rs 14.85 crore and Rs 15 crore, respectively.

Other companies like Supreme Infrastructure India, Barak Valley Cements and IT People (India) are also in the fray with small issues. Dagger Forst Tools has already entered the market to garner a little over Rs 16 crore. According to market watchers, a number of domestic banks,like Punjab National Bank, various subsidiaries of SBI, Canara Bank and Bank of Baroda, are investing heavily into public issues of small companies banking with them.

If one goes by what merchant bankers say, the subscription of banks to IPOs has shot up at least 10 times over the past 6-8 months. “By investing into public offerings, banks are trying to keep up their treasury income, which is under pressure due to higher income interest rates. Most banks subscribe to IPOs on hopes to make good money on listing day. This is more evident in the case of smaller issues and averagely rated public offerings”, said an investment banker.

The past has seen many a small issue do quite well. Companies like Jagjanani Textiles, Lawreshwar Polymers, Lumax Auto Technologies and Kovilpatti Lakshmi Roller Flour Mills have all raised money in the range of Rs 13-23 crore. While all the above-mentioned issues were fully subscribed, Lawreshwar Polymers was subscribed nearly six times.

“Institutional buyers generally keep away from small (fixed-price) issues as they have to mandatorily pay up the full application money at the time of applying for shares,” said Microsec Capital executive director-investment banking Rakesh