Earnings revival, stability key for IPO success: EY

Strong corporate earnings and stability in the markets and economy are the key drivers for improving activity in initial public offerings (IPOs), says a survey by consultant EY.

Respondents from both private equity (PE) and non-PE firms said cash flow and return on equity (ROE) were the most important financial factors in evaluating an IPO. Among the non-financial factors for PE firms were brand strength and market position followed by corporate governance practices. For non-PE firms, management credibility and experience.

Over 60 per cent of non-PE respondents in this EY India ‘IPO Readiness Survey Report’ said companies that were PEbacked were better candidates.

“The IPO eco-system is evolving at a rapid pace, with several companies looking to list within 2018. Financial sector, infrastructure and consumer companies with strong growth continue to be favourable for increased IPO activity,” said Sandip Khetan, partner at EY India

He feels the Securities and Exchange Board of India's recent announcement on reducing the number of years of financial information from five to three years will mean more IPO activity.

This was already strong in the first half of 2018, with 90 companies raising a cumulative $3.9 billion (~265 billion). This was 27 per cent and 28 per cent higher, respectively, than the number of deals and proceeds during the same period a year before. The bulk of fund raising, however, took place in the first three months; there was drop in the June quarter.