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In India while last year witnessed 26 companies raising more than $4 billion (Rs 26,500 crore) through IPOs, the most since 2010, their returns have prompted investors to put more money into capital market–directly benefiting the country’s startups.
From January to June this year, foreign institutional investors invested heavily into India, buying around $8.4 billion worth of stocks, compared to $2.96 billion just one year earlier. Driven by a rush of liquidity, euphoria on economic reforms and low interest rates, attaining the biggest gains in the past three years benchmark indices have risen substantially in comparison to the previous year. The BSE Sensex climbed 16.13% and the Nifty rose 16.31%, as against 3.3% and 4.3% respectively in 1st half of 2016. Nifty, on June 6, touched its record high of 9,709 level.
To ride this momentum of the capital markets, at least four companies plan to go public and collectively raise more than $300 million (Rs 2,500 crore) this month. The names of said companies include online matchmaking company Matrimony.com Ltd, road developer Bharat Road Network Ltd (BRNL), electronics maker Dixon Technologies (India) Ltd and real estate services provider Capacit’e Infraprojects Ltd.
Bharat Road Network Ltd (BRNL)
BRNL currently has a portfolio of six Build, Own and Transfer (BOT) road projects, out of which five are operational and one is under construction. With government impetus on infrastructure projects that includes awarding contractual work on laying 16,800 kms of road length in 2016-17–the largest-ever award of work for road construction in any country in a year. SREI Infrastructure Finance Ltd, the parent company of BRNL, has stated that the road developer will launch its initial share sale on 6th September; this IPO is expected to raise around $187 million (Rs 1200 crore) through sale of its less than 30 million (2.93-crore) equity shares. The company will use the proceeds from this IPO to bid for acquisition of stressed assets in the road sector. In a price band of more than $3 (Rs 195-Rs 205) per share, the issue will constitute 34.9% of the company.
Dixon Technologies (India) & Capacit’e Infraprojects
Consumer electronics and lighting products manufacturer Dixon Technologies (India) IPO will raise more than $93 million (Rs 600-650 crore), paving the way for a partial exit of Motilal Oswal Private Equity (MOPE), which had invested $6 million (Rs 40 crore) in Dixon in July 2008. This IPO has priced its shares in the range of $27 (Rs1,760-1,766) per share and an offer-for-sale of up to 3.05 million shares. Dixon Technologies will use part of the proceeds from the fresh issue for repayment of certain borrowings. It has total borrowings of about $9 million (Rs 63 crore). It will also use the proceeds to set up an LED TV manufacturing unit at its Tirupati facility.
In addition to this company, which is looking to raise around $62 million (Rs 400 crore) through its proposed initial share sale, is Mumbai-based construction company Capacit’e Infraprojects. The sale is expected to hit the market in the first half of September. The company has stated that it will use the IPO proceeds for working capital requirements, purchase of capital assets and for general corporate purposes.
One of the earliest entrants into matchmaking and marriage services, website BharatMatrimony.com’s parent company Matrimony.com will be launching its $54 million (Rs 350 crore) IPO in the first half of this month. For Matrimony.com this is the second attempt at going public in recent years. It had first filed its draft IPO papers in August 2015, but did not go ahead with the share sale at the time. The IPO will consist of an offer for sale of up to 3.7 million shares, with venture capital investor Bessemer Venture Partners making a complete exit, while venture capital firm Mayfield Fund will sell part of its stake. The company is likely to use the share sale proceeds for advertising and business promotion, purchase of land for construction of an office in Chennai, and repayment of overdraft facilities.
Matrimony’s IPO will mark another debut for a technology or an internet IPO in the Indian capital markets. Earlier instances of technology firms going public in India include Just Dial Ltd and Info Edge (India) Ltd. Last year, e-commerce firm Infibeam Inc. Ltd went public with a $70 million (Rs 450 crore) IPO, which was subscribed 1.1 times. Anti-virus software maker Quick Heal Technologies raised more than $70 million (Rs 451 crore), and earlier this year, internet and telecom infrastructure equipment maker Tejas Networks Ltd went public with its share sale.
With good demand for quality IPOs and ample liquidity in the system, the markets will continue to rise in the second half of the year. “The success of last year’s IPOs and their returns will prompt investors to put more money into the primary market,” said Ajay Saraf, executive director, ICICI Securities. Beyond September 2017 e-commerce startup Shopclues, Potato Wafer Company Yellow Diamond Chips and Gitanjali Gems which offers jewellery under Nakshatra, Gili, and Asmi brands are expected to tap the Indian capital markets.
However, the further continuance of this momentum for these companies will depend on companies’ earnings growth, while overcoming impact of the implementation of the goods and services tax (GST); GST is likely to disrupt the capital market system in the short term because of inventory pile-ups, and teething problems due to adjustment to the new taxation norms.
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