Initial public offerings (IPOs) have been an effective way to raise funds. A recent report by KPMG identifies various trends in the IPOs of FY17, FY18 and FY19.
According to the report, a total of 18 companies were listed in FY19 including 5 public sector undertakings (PSUs). These 18 companies, cumulatively raised Rs 19,900 crore. Against this, the 41 companies listed in FY18, raised over Rs 76,200 crore and the 26 companies listed in FY17 raised Rs 28,400 crore.
The funds raised in FY19 and FY17 were lower by 74 percent and 63 percent respectively as compared to FY18. FY18 and FY17 were amongst the best years for IPOs in India.
"In terms of funds raised, the largest two listings of FY18 were in the financial services sector, particularly the insurance sector. These two companies together accounted for over 27 percent of the funds raised during the year. The same pattern was visible in FY17 as well, where the two largest listings, accounting for 32 percent of the total funds raised during the year, belonged to the Financial Services sector," said the report.
It also noted that although insurance companies have been the biggest participants in terms of funds raised during FY18 and FY17, three out of the six insurance IPOs declined by 8.3 percent on an average, on listing day.
Listing Day Performance
The average listing day return of the 18 companies listed in FY19 was a meagre 2 percent as against 21 percent for the 41 companies listed in FY18 and 20 percent for the 26 companies listed in FY17, the report quoted.
Out of the 85 IPOs from FY17 to FY19, 58 ended the listing day at a premium to their offer prices, out of which 40 generated double-digit returns. Of these 40, two companies in FY19 delivered 20 percent plus listing day return compared to 15 companies in FY18 and 10 companies in FY17.
One company ended the listing day at its offer price and of the 26 companies from FY17 to FY19 which delivered negative returns, seven companies delivered double-digit negative returns.
Out of the nine sectors that saw more than two listings during the three financial years, the personal and household goods sector generated the highest listing day return of 72.1 percent, followed by construction and material at 18.1 percent, as per the KPMG report. It added that the sector at the bottom was clothing and apparels with a negative 2.1 percent return.
"Out of the 26 companies that yielded negative listing day returns, seven were from financial services and four each from industrials, manufacturing, and metals, construction and material and TMT sectors," it stated.
IPOs with smaller issue size, in general, saw greater subscription by amount compared to IPOs with larger issue size, according to the report. The 10 IPOs that had the highest subscription to funds raised ratio, were all below Rs 600 crore.
Performance on the basis of the size of the offering
FY18 was the year of large IPOs. Not only was the average offering size in FY18 higher by about 70 percent compared to FY17 and 68 percent compared to FY19, but the three largest IPOs in FY18 also raised more capital than all the IPOs in FY17 and FY19, individually, the report calculated.
The global consultancy firm noted that the top five IPOs in FY19 in terms of size of the offering returned an average of 11 percent as compared to the negative 9.5 percent return of the smallest five IPOs of the year.
While in FY18, the five largest IPOs returned a meagre 1.8 percent on listing day compared to 75.2 percent returned by the bottom five companies. The corresponding figures for FY17 were 30.7 percent on a listing day, on average, for the top five compared to 1.3 percent for the bottom five.
It also noted that FY19 witnessed a slowdown in the listing space, compared to the two preceding years. Of the 18 listings during the year, the top three sectors in terms of a number of listings were financial services, construction and materials, and hospitality with five, three and two listings, respectively.
As per the report, the financial services sector leading the pack, raised Rs 11,000 crore constituting 55 percent of the total funds raised during the year. The top three sectors constituted 56 percent of the listings, raising 73 percent of the year’s total funds raised.
Financial services was again the frontrunner amongst the sectors during FY18 with a total of 12 listings, followed by construction and materials at six and industrials, manufacturing and metals at five.
In FY 18 also, the companies in the financial services sector raised the maximum capital at Rs 54,600 crore or around 72 percent of the total funds raised during the period, with the help of listings of the companies in the insurance space. These three sectors together accounted for 56 percent of the listings and around 84 percent of the funds raised.
The report further added that though the distribution was relatively less concentrated in FY17, the pattern was repeated. The top three sectors included financial Services with six, followed by TMT with five and Healthcare with three listings.
Together, those companies accounted for 54 percent of the listings with 71 percent of the total funds raised. Financial services alone accounted for over 51 percent of the funds raised, it quoted.