Covid takes the wind out of IPO sails; only 11 filed in CY20

WWW.SMARTINVESTOR.IN FOR INFORMED DECISION MAKING Number down from 27 filings last year

The pandemic has been a dampener for IPO (initial public offering) aspirants. So far this year, only 11 companies have filed their draft offer document with the Securities and Exchange Board of India (Sebi), down from 27 last year.

Market players said the lockdown and social-distancing norms had made it difficult for companies, investment bankers, and legal firms to do the paperwork for an IPO filing.

Add to that, the economic shock created by the pandemic has worsened the profit and loss accounts of many companies, which is acting as a deterrent.

“When the economy is not doing that well, you do not need that much of growth capital. Quite a few sectors have been badly hit. Even those companies which want to do purely secondary sales will find merit in waiting if their sectors are badly impacted due to the pandemic,” said V Jayasankar, head of equity capital markets, Kotak Investment Banking.

Uncertainty regarding valuation has led to companies keeping their IPO plans on the back burner.

“Companies will have to file with the last audited results. And the minute you file that, people will start guessing the valuation. Why would anybody file with bad numbers? At the best, sales are stagnant, and in such a situation, you will not get your expected valuation from the market,” said Rajendra Naik, managing director (investment banking), Centrum Capital, adding that many Ipo-bound companies did not have good growth last year either.

Companies are worried about investor concerns regarding the impact of the pandemic on their businesses.

“When one does an IPO, one has to tell the story completely to explain why things are harsh now, and the prospects. Hence Ipo-bound companies may wait a little longer when the economy is not doing well,” said Jayasankar.

Skanda Jayaraman, managing director (investment banking), Spark Capital, said companies would require a lot of data to assess the situation.

“Most people do not have the data now,” added Jayaraman.

Bankers said IPO filings were a lengthy and tedious process. Doubts over sustainability in a secondary market rally make it difficult for companies to time the IPO, according to them.

“The markets have risen because of surplus liquidity. And this is a global phenomenon. Doing an IPO is one thing; after the IPO, the company needs price support and for that you need long-term money that will support it if the economy goes down. The fear most people have is you can do an IPO, but six months down the line, if the markets decide to catch up with the economy and correct, there is fear of their stocks tumbling,” said Jayaraman.

Typically, there is a rush in filing in September because companies can file their prospects based on their March numbers. Filings that take place after September have to disclose their June-quarter numbers. As the June quarter is when most companies see the maximum disruption, the IPO filing slump could continue. Experts said only companies which could demonstrate they had emerged stronger from the Covid-19 pandemic could muster the courage to file their IPO documents now.