Three companies will likely hit the market this month with initial public offerings (IPOs) that will test the nerves of investors, on edge because of the contagion effect from China.
Cancer care specialist HealthCare Global Enterprises Ltd (HCG), staffing services firm TeamLease Services Ltd, and footwear manufacturer and retailer SSIPL Retail Ltd will seek to raise a collective Rs.1,400 crore through the IPOs, bankers familiar with the plans said.
The IPOs will serve as a litmus test of investor appetite in a month that has started on a tumultuous note, with the BSE Sensex losing about 1,000 points, or 4.5%, in the first week.
Global markets were shaken as China pegged the yuan lower for eight days in a row, sparking concerns about the outlook for the Chinese economy and prompting fears of competitive devaluation by other countries.
On Friday,the Sensex gained 0.33% to 24,934.33 points, helping pare the loss, as China’s central bank moved to stabilize the yuan.
“Any company which is looking to enter the market at this time will have to be a fundamentally strong company, with good track record and will have to offer reasonable valuation,” said Prithvi Haldea, chairman of Prime Database, which tracks primary markets.
Valuations in a volatile environment are likely to be lower than in a bull market, and that may make the IPOs more attractive for the investors, he added.
“Most of the IPOs in the pipeline are small in size, aroundRs.500-800 crore, and they will not need too much support from foreign institutional investors who have been pulling out money from the markets,” Haldea said.
The three issues in the first month of 2016 are coming on the heels of a long line of IPOs that hit the market in 2015. Last year, the IPO market saw 21 firms raising a collectiveRs.13,600 crore, according to data from Prime Database. This was the highest amount raised since 2010.
HCG is looking to raise around Rs.600-700 crore through its IPO and is likely to be the largest issue this month.
“While the company and its bankers are targeting end of January for the launch, they are still in discussions with investors, trying to assess the institutional demand before firming up the timeline,” said one of the bankers cited above. He requested anonymity as he is not authorized to speak to the media.
TeamLease and SSIPL are looking to raise Rs.450-500 crore and around Rs.200 crore, respectively. TeamLease may launch its IPO towards the end of the month, said a second person, also requesting anonymity.
HCG declined to comment for this story. Emails sent to TeamLease Services and SSIPL Retail on Thursday afternoon did not elicit any response.
To be sure, investor demand has been high and the performance of recent IPOs may help sustain interest.
The last five IPOs have delivered strong listing-day gains. Shares of Dr Lal PathLabs Ltd, Narayana Hrudayalaya Ltd and Alkem Laboratories Ltd listed on the stock exchanges with first-day gains of 49.8%, 34.7% and 31.5%, respectively.
Still, bankers are cautious given the recent risk-off sentiment seen across global markets.
“The markets are a concern and that could impact the timelines of these IPOs,” said a third person, who is involved in one of the IPOs.
“If the markets remain choppy, then companies might delay launching their IPOs, because with an IPO, you cannot tweak the timelines at the last moment,” said Munish Aggarwal, director at investment bank Equirus Capital, adding that companies whose IPO approvals are far away from lapsing might be better off waiting for market volatility to subside.
HCG, a speciality healthcare firm focused on cancer and fertility treatment, filed its draft IPO papers with capital market regulator Securities and Exchange Board of India in July. HCG’s investors, including PremjiInvest, the private investment venture of billionaire Azim Premji, and Singapore’s Temasek Holdings Pte. Ltd, are selling part of their shareholding through the IPO.
The firm will also raise primary funds through the issuance, which will be used to repay debt, purchase medical equipment and invest in IT systems.
As of 30 June, HCG’s network consisted of 15 cancer centres including a “centre of excellence” in Bengaluru, four free-standing diagnostic centres and one day-care chemotherapy centre.
Staffing services firm TeamLease is looking to raise primary capital of Rs.150 crore, while the rest of the offer will include sale of shares by its private equity investors Gaja Capital and ICICI Venture’s India Advantage Fund.
TeamLease plans to utilize the proceeds raised from the IPO for funding existing and incremental working capital requirements and for acquisitions. As of 31 March 2015, the firm had provided employment to some 1.12 million people.
Footwear maker SSIPL Retail, which had first filed for an IPO in March last year, re-filed its draft papers in October.
According to its revised plan, the company is looking to raise Rs.72 crore of primary capital, with private equity investor Tano Capital selling its entire shareholding of 15.85% through an offer for sale.