IPO market in a slump! After a strong FY24, only 3 mainboard IPOs list in April, 2 trade above issue price

After a strong rise in the number of initial public offerings (IPOs) in the financial year 2023-24 (FY24), the mainboard IPO market witnessed a slump in the first month of the financial year 2024-35 (FY25), April. The current market volatility, election season, and foreign investment outflows in April are being blamed for a lull in the mainboard IPO space.

Only 2 mainboard IPOs opened in the previous month – the much-awaited Bharti Hexacom and JNK India. Meanwhile, including these two and SRM Contractors (IPO closed in March), just 3 issues were listed in April.

However, on the back of the overall positive market sentiment, 2 of the three IPOs that were listed in April are currently trading above their issue prices. Overall in 2024 YTD, 25 mainboard IPOs have listed on the exchanges so far.

IPOs in April

SRM Contractors: The IPO was listed SRM Contractors shares were listed at ₹225 apiece, a premium of 7.14 percent to the issue price of ₹210 per share, on the BSE on April 3. Currently trading at ₹199.15, the stock is below its issue price.

The issue was open for subscription between March 26 and March 28 with a price band set in the range of ₹200-210 apiece. SRM Contractors IPO was a book-built issue of ₹130.20 crores, which was entirely a fresh issue of 62 lakh shares. The IPO was subscribed 86.57 times till the last day of bidding.

“Despite the strong subscription, some investors might have found the valuation at listing less attractive. Also, broader market conditions might have impacted investor sentiment and tempered listing gains,” Shivani Nyati, Head of Wealth, Swastika Investmart has said post its listing. 

“The company’s strong regional presence, in-house capabilities, and healthy order book remain positive points. However, a cautious approach is advisable,” she added.

SRM Contractors is an engineering construction and development company engaged primarily in the construction of roads (including bridges), tunnels, slope stabilisation works and other miscellaneous civil construction activities in the Union Territory.

Bharti Hexacom: Bharti Hexacom made a stellar debut on the bourses on April 12. On NSE, Bharti Hexacom share price opened at ₹755 per share, 32.5 percent higher than the issue price of ₹570. Currently trading at ₹878.80, the stock is trading over 54 percent higher than its IPO price.

The issue was open for subscription between April 3 and April 5 with a price band set in the range of ₹542-570. Bharti Hexacom IPO was a book-built issue worth ₹4,275 crore, which was entirely an offer for sale of 7.5 crore shares. The company’s only selling stakeholder was Telecommunications Consultants India. During the span of the three-day subscription period, investors responded well to Bharti Airtel’s subsidiary company. It was subscribed 29.88 times.

Bharti Hexacom is a communications solutions firm that serves the telecom circles in North-East India, which includes Rajasthan and the states of Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, and Tripura. It offers broadband services in addition to fixed-line phone service. The business goes by the name Airtel to market its services.

Jefferies initiated coverage on Bharti Hexacom with a buy rating and target price of ₹1080, indicating a 23 percent upside potential.

Jefferies outlines four key reasons for expecting further gains for Bharti Hexacom, including a strong growth outlook, margin improvements, robust free cash flow generation, and lower capital intensity that boosts returns on capital employed (ROCE). This has enabled a 25% reduction in the net debt to EBITDA ratio. Jefferies anticipates Bharti Hexacom’s ROCE to nearly double to 17.5% from FY24 to FY27, driven primarily by a 10 percentage point increase in EBIT margin during this period.

JNK India: JNK India’s stock had also made an impressive debut on the market on April 30, listing at ₹621 per share on the NSE, a premium of 49.63 percent from its issue price of ₹415. Currently trading at ₹637.65, the stock is almost 54 percent higher than its issue price.

Read here: Awfis, TBO Tek gets SEBI nod for IPOs; to raise ₹160 cr & ₹400, respectively

The issue was open for subscription between April 23 and April 25 with a price band in the range of ₹395-415 apiece. The ₹649.47 crore IPO was a combination of a fresh issue of 76 lakh shares aggregating to ₹300 crore and and offer for sale of 84 lakh shares worth ₹349.47 crore. The IPO also garnered a robust response from investors across the board, with an overall subscription status of 28.13 times.

The company specialises in manufacturing “heating equipment,” encompassing a range of products such as process-fueled heaters, cracking furnaces, and reformers. These play a crucial role in various process industries, including refineries for oil and gas, fertilisers, and petrochemicals. Their offerings extend to comprehensive services covering design, engineering, manufacturing, supply, installation, and commissioning of heating equipment, catering to both domestic and international markets.

Post its listing, Shivani Nyati, Head of Wealth, Swastika Investmart, said, “This impressive listing significantly surpassed the anticipated 30 percent premium predicted by the grey market, underscoring the overwhelming investor confidence in JNK India’s future potential. While the initial surge might be followed by some volatility, the strong fundamentals and positive outlook suggest long-term potential. Existing investors may hold their shares with a stop loss of ₹560 and monitor the performance closely.”

Other highlights and outlook

Apart from these, around 12 companies filed their IPO offer documents with SEBI. Also, there was 1 Confidential filing of Swiggy. Currently, 3 IPOs viz. Indegene, Aadhar Housing Finance and TBO Tek have announce their IPO launch date for May.

Moreover, after receiving approval from SEBI, several other companies, including Akme Fintrade (India) Ltd, Western Carriers, Indegene, CJ Darcl, DEE Piping, Aadhar Housing Finance Ltd, and Kross Ltd, are also expected to enter the IPO market soon. In the fiscal year 2023-24 (FY24), a notable 76 companies went public through mainboard IPOs, raising over ₹62,000 crore, a 19 percent increase from the previous fiscal year (FY23), according to an analysis by Pantomath.

Despite the current slowdown in mainboard IPOs, brokerages and market analysts anticipate a dynamic and vibrant IPO landscape in FY25, offering promising opportunities for both companies and investors. Market professionals attribute the present quiet period in the mainboard IPO space to factors such as market volatility, election season, and foreign investment outflows. Nonetheless, they remain optimistic about the prospects for growth and activity in the IPO market in the coming fiscal year.

“Initial public offerings typically follow market cycles, so it is no surprise that primary markets saw robust issuance activity in FY24. So IPO trends next year should depend on equity market returns and investor sentiment,” said Krishnan V R, Chief of Quantitative Research team at Marcellus.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.