Ujjivan Financials’ IPO draws massive response

Small finance bank (SFB) licensee Ujjivan Financial Services’ initial public offering (IPO) raised Rs. 885 crore in an initial public offering (IPO) that closed on Monday after receiving spectacular demand for more than 40 times the shares on offer.

Ujjivan’s is the third IPO in two months to be snapped up by investors—a signal that appetite is returning to the primary market. Last month, SFB license holder Equitas Holdings Ltd’s Rs. 1,525 crore IPO drew demand for more than 17 times the number of shares on sale and its shares did well after listing. Similarly, last week Thyrocare Technologies Ltd received demand for 73 times the number of shares it offered in a Rs. 480 crore IPO.

“The last six months have been good for the capital markets. We have seen several successful deals and that has created a positive sentiment for IPOs,” said V. Jayasankar, senior executive director and head of equity capital markets at Kotak Investment Banking. Kotak is one of the banks managing the Ujjivan share sale.

Market’s affirmative mood has attracted several large firms such as Vodafone and HDFC Standard Life Insurance Co. Ltd to tap the IPO market. HDFC Standard Life has already announced its intention to complete its initial share sale by the second half of the calendar year whereas Vodafone India has authorized merchant banks for its planned $2 billion IPO, Reuters reported on Sunday.

Ujjivan’s IPO  was oversubscribed 40 times, with strong demand from all segments of investors. The 29.7 million shares on offer saw bids for 1.2 billion shares worth Rs 25,200 crore, despite no participation by foreign investors.

The qualified institutional buyer portion was subscribed nearly 34 times, while the non-institutional buyer (high net worth individual) segment saw subscription of 135 times.The issue, which opened on 28 April, comprised fresh shares worth Rs. 358.16 crore and an offer for sale of up to 24.9 million shares by existing shareholders. The company had fixed a price band of Rs. 207-210 per share.

Experts, however caution that the investor appetite, though strong, is still limited to a few sectors and few companies. “Old economy sectors, such as power, infra and real estate, are still far away from the IPO market,” said Prithvi Haldea, chairman of Prime Database, a primary market tracker, adding that investors are keen on good companies with good track records and reasonable valuations.

Haldea added that one cannot deny the possibility that a run of successful IPOs could spark a frenzy of share sales. “If the secondary market goes on a bull run and IPOs that come to market, they all start trading at a significant premium to their offer price, then it will embolden second level of companies—bad companies with bad pricing—to tap the market although we are still away from that phase.”

Like Equitas, Ujjivan's IPO, was to reduce foreign institutional investors (FIIs) ownership. The RBI has set an investment limit of 49 per cent for FIIs in an SFB. The FII holding in Ujjivan is likely to fall from the current 77 per cent to below 45 per cent after the IPO. The IPO comprised a secondary share sale by existing foreign investors, worth Rs 500 crore. The company issued fresh equity worth Rs 358 crore in the IPO, which will shore up its capital base.

Ujjivan is the country's fourth largest micro finance institutions in assets under managements.The company expects to start its small finance bank operations in the first quarter of 2017, the company said.