The uncertainty surrounding the economy has hit the fund raising programme of corporate houses in the primary market. While four companies had let SEBI approval for IPO expire, 10 of them are keeping their fingers crossed, as the approval for these companies expires before March. As of January 20, there are 76 companies waiting for SEBI's clearance to tap the primary market.

Though raising funds from the capital market through IPOs is a cheaper option in these times of high lending rates, companies do not want to risk reputation loss if the offer is not received well, said a merchant banker.

Goodwill Hospital and Research Centre, which operates a 220-bed multi-speciality hospital, Ojjus Medicare, at Noida, had to cancel its IPO in January. The company could not manage the minimum subscription even after extending the deadline by three days.

Valuation & response

The issue was in the price band of Rs 175-185 a share. The company had an operating margin of 70 per cent, which is unheard of in the healthcare industry, said an analyst. Besides the uncertain market conditions, the high valuation sought by the company was one of the reasons why the issue failed, he said.

“The company was looking for a valuation of 15 times of its FY11 EPS on an upper price band of Rs 185 and a P/BV (price to book value) of 2.4 times, while its peers such as Fortis Malar Hospitals and Noida Medicare were trading at 9.4 and five times their trailing earnings respectively,” he added.

Cautious promoters

In May last year, Galaxy Surfactants had to withdraw its issue a day before its official close, again due to poor response from investors. The overall offer had been subscribed only 0.30 times, according to NSE data.

Unlike large IPOs, smaller ones are left to market vagaries as they are not underwritten by investment bankers, said another analyst. Promoters of these companies are extremely cautious and do not want to take the risk, he added.

The slowdown in the global economy and financial crisis in the Euro Zone has also made it difficult for small and medium size companies to raise funds through private placement, a much preferred option after an IPO.

Besides assurance on financial performance, private equity investors look to promoters listing the company in a pre-agreed time frame. This enables private equity investors to exit their investment at the market determined price, said the analyst quoted above.

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