One of the highlights of the last few trading sessions has been the spectacular listing of ICRA. Investors who got allotment have trebled their money in a few days as the stock soared from an issue price of Rs. 330 to a thousand rupees. It brings back memories of Tech Mahindra's listing in August last year. No less spectacular. The issue was at Rs. 365 and the stock zoomed to 2000 within months of listing. Apart from being stunning wealth creators, these IPOs have some hard lessons for investment bankers and IPO-ing promoters.
Both companies got the pricing right. They didn't come across as grabbers who were looking to squeeze every last penny that the market was willing to give. Rather, they realised that the market is a good ally to have and once they let investors make money, they would be rewarded with their loyalty in all future forays to raise capital. In that they were not penny wise and pound foolish. ICRA wanted only Rs. 330 crore as the valuation for it's business. The benchmark was Crisil with a market cap of Rs. 2,200 crore.. ICRA could have effortlessly asked for a third of it, Rs. 700 crore, and got it too, given that its revenues are well over a third of Crisil's. Instead, it chose to leave that on the table for investors. Tech Mahindra priced its IPO at 365, even before its big BT deal, that came to about seven times FY08 earnings. That's not even half of the average IT sector price-to-earnings multiple. Again, it chose to leave something for investors. It listed at Rs. 520 and kept going up, making a lot of investors rich and happy.
Recent instances of IPO pricing convince me that such generosity is not the domain of investment bankers. They are all too happy to get the last dollar in for the promoter. Some managements, though, think differently. In the hands of such managements rests the future of the Indian primary market and it's ability to spread the equity cult far and wide. For the Indian investor, the lure of a good IPO and the joy of making money in one, stands above anything else; and it works for the promoter too.
Ask yourself, would you subscribe to a follow on or rights offer from ICRA/Tech mahindra or Deccan Aviation?