The Hindu Business Line : `Ultimate pricing in public issues is a judgment call'

VALUING an equity share eventually boils down to gut feel, said Ms Shanthi Ekambaram, Director, Kotak Mahindra Capital, on Thursday at a conference on `Emerging global trends in corporate finance' organised by the Confederation of Indian Industry.

Ms Ekambaram, who took the conference participants through the process of equity valuation in a public issue, stressed on the subjective element in the exercise. "Ultimate pricing is a judgment call," she said.

Ms Ekambaram said that a key challenge in a public issue is to strike a fine balance between the needs of the company and investors. The price should be at a level that allows both sides to benefit, she added.

She highlighted the role by institutional investors in helping investment bankers get a feel of the market. Investment bankers conduct a pre-marketing survey among institutional investors where a company's virtues are sold. The early feedback from institutional investors helped the bankers get a feel of the market for the issue, she said.

The critical role played by institutional investors in raising resources was emphasised during another presentation too. Mr K. Raghavendra Rao, Managing Director of Orchid Chemicals & Pharmaceuticals, detailed the beneficial role played by institutional investors in the company's expansion plans.

Mr Rao said Orchid's private placement to two institutions, Schroders and International Finance Corporation, were crucial in raising capital for expansion. He said that the long investment horizon of institutions made them flexible and more patient than retail investors.

Ms Ekambaram said that the general perception of a company's promoters or management was critical in equity valuation. When a management had a good reputation, it showed up in the form of a premium in the valuation, she added.

She cited the background to the valuations of two recent public issues to drive home the point. NDTV, a loss-making company, found its valuation positively influenced by the stature of its Chairman, Mr Prannoy Roy. Similarly, Biocon's Chiarman and Managing Director, Ms Kiran Mazumdar-Shaw, had beneficial impact on the company's valuation, she added.