Financial institutions, tech companies have dominated IPO markets in CY21:
Calendar Year 2021 created history, with more IPOs in a year than in the last 3 years combined, both in number of listings and amounts raised. CY21 saw the highest ever IPO volumes in India. A record-breaking Rs1.35 trillion was raised by 65 companies during the CY21 by way of IPOs, the highest in the history of the Indian capital market. In CY21, IPO volumes surged to over $15.3 billion, as against $4.2 billion in CY20, according to a Kotak Investment Banking report.
Kotak Mahindra Capital Company executed a number of IPOs as Book Running Lead Manager (BRLM) in FY21 and in the first 3 quarters of FY22. Kaushal Shah, ED & Head, ECM (equity capital market), updates: “Kotak has successfully completed 17 IPOs during 1st April 2021 to 31st December 2021 as against 5 IPOs for corresponding period last year.”
ICICI Securities completed 20 IPOs as the BRLM during the current fiscal April to November 2021. Ajay Saraf, Head, Investment Banking & Institutional Equities, claims: “We are number 1 in terms of completed number of IPOs and number 1 in terms of amount of funds raised through IPOs.”
25% Growth in IB Fee
In CY21 Indian investment banking (IB) fee pool for the first time crossed $1 billion, a 20-25% growth over 2020. The rise in fee has been on account of rise in volumes as well as rise in margins. Surge in business has also helped margins improve in the investment banking fee pool. Massive surge in IPOs in CY21, has continued to help in the rise of the Investment Banking (IB) fee pool, as per the Kotak IB report.
Total amount of issues, wherein Kotak was the BRLM to the IPOs in FY 2022, stands at Rs553.24 billion, against Rs223.15 bn in the last FY. Kaushal states: “3 top IPOs in the first 3 quarters of FY2022, with Kotak as the BRLM, included Zomato (Rs93.75 bn), Star Health & Allied Insurance Company (Rs60.19 bn) and PB Fintech (Rs57.10 bn).”
ICICI Securities has completed 20 IPOs during April to November in the current fiscal aggregating to Rs642.56 billion, against 6 IPOs aggregating to Rs68 bn in the previous year same period. Ajay informs: “This indicates a y/y growth of over 840% in terms of funds raised compared to previous year same period.”
For the first 6 months of the current fiscal, ending September 2021, ICICI Securities’ fee income from IPO segment has increased significantly. Ajay adds: “Our issuer services and advisory revenue grew by 113%, to Rs474 million, from Rs223 mn in September 2020.”
Funds, Retail Participants
It was the year of retail investors. They have enthusiastically participated in IPOs with several being oversubscribed on Day 1 in a few hours. CY21 also saw FII Long Only, sovereign wealth funds (SWFs), tech funds, EM (emerging markets) funds as significant participants in large IPOs. The year also witnessed flows into large IPOs out of global allocations and not just EM allocations of these investors.
Ramesh, MD & CE0, Kotak Mahindra Capital Company, provides insights: “2021 has been the year of the retail investors revolution. They have turned leaders than being followers. From an IPO perspective, the year has been unique in many ways. Institutional and retail investors welcomed IPOs with great enthusiasm IPOs. 2021 was huge for the IPO fund raising market.”
16 (94%) of 17 IPOs in 3 quarters of the current FY, with Kotak as BLRM, have been several times over-subscribed. Market forces have led to the above. Kaushal explains: “Strong institutional flows into India on the back of sound India fundamentals and global liquidity available. FII interest has been consistently robust in primary issuances even in months of outflows in the secondary markets. Strong FII flows have been supplemented by strong domestic flows. Significant inflows in the mutual fund segment have added to the strong performance of IPO transactions in India.”
India has seen an emergence of a digital / tech stories and internet stories have garnered solid interest on the basis of being category leaders, having asset light models and compounding growth potential. Interest have been across sectors and deal sizes including consumer internet, healthcare, real estate, fig and consumer – while covid created tailwinds for pharma / healthcare sector, real estate sector evinced interest especially given resurgence of the residential segment.
Tech, FIG Dominate
Digital tech companies have dominated IPO markets in CY21 similar to other global markets, the split has been far more distributed across sectors. India’s number one IPO Banker continues to see traction in IPO pipeline from key sectors: digital tech, consumer, FIG (financial institutions group), healthcare, real estate and specialty chemicals. There have been several unique stories hitting IPO markets from other sectors as well – prime example being Sona Comstar from industrials.
Ramesh points out: “Institutional and retail investors welcomed IPOs from new-age tech and SaaS (software as a service) companies.” The demand for IPOs, in which ICICI Securities has been BRLM, has witnessed mixed outcomes. Ajay cites toppers: “For Latent View Analytics, the demand was for 185.32 times the shares on offer. Similarly, the demand for Tatva Chintan Pharma Chem was 124.52 times and for Shyam Metalics & Energy it was 84.58 times. Within the BFSI & tech space, more demand was recorded for FSN E-Commerce Ventures (45.47), Aptus Value Housing Finance India (12.06), PB Fintech (10.17) and less demand was recorded for Star Health & Allied Insurance (0.95), FINO Payments Bank (1.34), One 97 Communications (1.48) and Aditya Birla Sun Life AMC (3.58).
Average Ticket, Deal Size Up
The average ticket size and number of deals in relevant IPO size categories have also gone up, indicating sustainability in IPO volumes going forward. The average deal size jumped to $288 million (from $265 million). The average IPO size also significantly shot up to Rs20 bn. There are more deals clocked over $500 million through IPO than ever before. 10 companies raised over $500 million in CY21 compared to 3 in CY20. Similarly, 7 companies raised money between $250 to $500 million through IPO, as against 2 in the previous year. Block deals volumes continue to remain robust at $6.6 billion, says the Kotak IB report.
Target Quality Companies
Kotak has a strong pipeline of IPOs of companies, which have filed their DRHPs as well those, which have initiated IPO activities and are in the process of filing the DRHP with SEBI. Kaushal explains: “With regards to IPOs, we will continue to target quality companies and few considerations include differentiated companies with unique moats, companies that are market leaders in their sectors, companies with strong financial performance and return metrics, proven promoters track record with experienced and dynamic management team, and companies with relevant market cap post listing as well as IPO size.”
Ajay informs: “Amongst other things the subscription figures are dependent on various factors like, quality of anchor book, valuation compared to listed peers, future outlook of the company and the sector, competing offers in the similar timeline and other macro factors.”
Momentum To Continue
Kotak has a strong pipeline of IPOs of companies, which have filed their DRHPs as well those, which have initiated IPO activities and are in the process of filing the DRHP with SEBI. There are about 64 IPOs in pipeline due to be out in the remaining time of the current FY. Out of this, at least 10 IPOs are ones where Kotak is a BRLM. The pipeline of these IPOs includes those of BFSI and fintech companies like Arohan Financial Services, Utkarsh SFB, Jana SFB, Fincare SFB, Northern Arc Capital, Aadhar HFC, Fusion Micro Finance, AGS Transact Technologies, Tamilnad Mercantile Bank, Capital Small Finance Bank, Radiant Cash Management Services and Five-Star Business Finance. Kaushal says: “We believe the strong appetite for IPOs will continue going forward for IPOs across sizes and sectors.”
ICICI Securities has a strong pipeline of IPOs at various stages, some of them have been filed with the regulators and some are to be filed. Ajay states: “We recently launched IPOs of Supriya Lifescience, Metro Brands and Shriram Properties, which got listed during December 2021. We believe that the equity capital markets have enough appetite for quality issuers to raise funds during the rest of the FY.”
V Jayasankar, Wholetime Director, Kotak Mahindra Capital Company, predicts: “The IPO momentum is likely to continue in CY22, which will be dominated by resilient sectors such as new age tech, FIG, healthcare, consumer, real estate and specialty chemicals. With $15 billion IPO pipeline in place that are filed with SEBI and awaiting launch and $11 billion likely to be filed in the near term, we can expect good share of IPO activity across midcaps and large-caps with several high-quality companies looking to list. Fund raising activity will continue to remain buoyant from companies which listed in CY20 and CY21 that may come back to raise funds, looking for growth capital. Overall, 2022 would be good for the Indian capital fund raising market.”
Kotak MCC expects 2022 to be another good year. Ramesh alerts: “Nevertheless, investors should be cautious and not assume all IPOs to hit the bulls eye. Exercising judgement and right insight will be crucial in terms of outcome.”