Huge IPO response raises HNIS’ break-even point

50% premium in Happiest Minds, 30% in Route Mobile will bring cheer to wealthy investors who placed leveraged bets

High networth individuals (HNIS) will be a happy lot only if shares of Happiest Minds Technologies soar more than 50 per cent during their stock market debut on Thursday.

Huge subscription has pushed up the break-even cost for wealthy investors, who placed leveraged bets on the initial public offering (IPOS).

The HNI portion of the Happiest Minds IPO was subscribed 351 times with bids worth over ~37,000 crore. Someone who bid for shares worth ~105 crore — the maximum allowed for this IPO — will be allotted shares worth ~28 lakh. After factoring in the borrowing costs for eight days, the break-even cost for the Happiest Mind IPO works out to ~251 per share, which is a premium of over 50 per cent to the issue price of ~166 per share.

While a 50 per cent gain on the first day is rare, it is not unique. The last IPO — of specialty chemicals firms Rossari Biotech — had listed at a 75 per cent premium, resulting in windfall gains for investors.

The break-even cost for Route Mobile is slightly lower because it saw less subscription than Happiest Minds.

According to industry players, HNIS will make money on this IPO if the stock lists at a 30 per cent premium. Route Mobile will make its stock market debut on Monday.

Non-banking financial companies (NBFCS) lend to HNIS at 9-12 per cent per annum. Relative to the amount borrowed, the amount of subscription is only a minuscule portion, which helps mitigate risk. Typically, HNIS base their calculations on grey market premiums. The bets tend to go awry if underlying market sentiment worsens, as it was seen during the IPO of SBI Cards earlier this year.

Industry players said the ongoing buoyancy in the market, particularly in the small-cap space, could act as tailwind.

“If one goes by grey market indicators, HNIS are likely to make money on both these IPOS. Also, the sentiment towards the broader market universe has improved following the regulator’s multi-cap diktat. This would give a further boost,” said an analyst.

At the issue price, Happiest Minds will have a market cap of ~2,440 crore. The company is founded by Ashok Soota, the founding chairman and managing director of Mindtree.

Happiest Minds generates revenues mainly from digital services. It offers solutions in areas such as robotic process automation (RPA), network function virtualisation, Big Data and advanced analytics, and Internet of Things (IOT).

Route Mobile will have a market cap of around ~2,000 crore at its issue price of ~350 per share.

The firm provides mobile technology services and offers an omni-channel platform to enterprises using digital modes of communications to engage with their clients.

Industry players said retail investors were likely to make good gains.

However, in the retail segment, for every 45 applications, one investor got allotment in the Happiest Mind IPO.