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Biggest beneficiaries of IPO boom -- venture capital funds, private equity players

Biggest beneficiaries of IPO boom -- venture capital funds, private equity players

According to data from Prime Database, a primary market tracker, while there have been 25 companies that listed on the bourses this year, as many as 10 of those saw at least one PE/VC shareholder diluting its stake by offering shares as part of the IPO

Market participants attribute the trend to the growing maturity of the Indian investors who, according to them, are ready to look at parameters beyond profitability Market participants attribute the trend to the growing maturity of the Indian investors who, according to them, are ready to look at parameters beyond profitability

The overall buoyancy in the secondary markets has attracted millions of new investors to the markets this year but the ones that seem to have benefitted the most seem to be venture capital funds and private equity players.

This is corroborated by the fact that a significant number of initial public offers (IPOs) that hit the markets this year saw its venture capital or private equity shareholder exit while making an impressive return on investments.

According to data from Prime Database, a primary market tracker, while there have been 25 companies that listed on the bourses this year, as many as 10 of those saw at least one PE/VC shareholder diluting its stake by offering shares as part of the IPO. When an existing shareholder offers shares in the IPO, it is called an offer for sale or OFS and these 10 IPOs had an OFS component as well in the public issue.

Market participants attribute the trend to the growing maturity of the Indian investors who, according to them, are ready to look at parameters beyond profitability. "Indian investors' approach towards looking at valuations is changing and that is giving new age businesses an opportunity to tap Indian stock market," said Mahavir Lunawat, Managing Director, Pantomath Group, an investment banking firm that recently managed the IPO of Exxaro Tiles.

"Earlier, profitability was a key metric and hence we didn't see many new-age companies from the e-commerce and digital sectors coming to the market as they are at pre break-even level. These companies and their shareholders had to look at the private funding space. But with investors becoming more mature, we will see an increasing number of PE/VC backed companies coming to get listed on bourses," added Lunawat.

The recent past saw a strong listing by online food delivery major Zomato while the coming months would see IPOs of digital majors and new-age firms like PayTM, Policybazaar, Mobikwik and Nykaa among others.

Meanwhile, companies like Indigo Paints, Home First Finance Company, Stove Kraft, Craftsman Automation, Nazara Technologies, Suryoday Small Finance Bank, Barbeque-Nation Hospitality, Krishna Institute of Medical Sciences, G R Infraprojects and Rolex Rings all saw a PE or VC shareholder offer shares in the IPO this year.

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Incidentally, some of these offerings had a larger OFS component when compared to the quantum of fresh issue of shares. Promoters along with the bigger shareholders typically avoid a large portion of fresh issue of shares when there are many existing shareholders ready to offer shares in the offering since a fresh issue leads to higher stake dilution.

For example, GR Infraprojects’ IPO that opened last month to raise nearly Rs 1,000 crore was entirely an OFS with funds like India Business Excellence Fund and India Business Excellence Fund I offering their shares along with the promoters to public shareholders.

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Similarly, Indigo Paints and Stove Kraft both saw leading institutional investors and PE/VC majors SCI Investments and Sequoia offloading their shares as part of the IPO. The public issue of Craftsman Automation also saw International Finance Corporation as one of the selling shareholders.

Well-known global PE major General Atlantic sold its shares in the IPO of Krishna Institute of Medical Sciences, which raised nearly Rs 2,200 crore from the market. In the case of Rolex Rings, while the IPO size was Rs 731 crore, the fresh issue component was a mere Rs 56 crore while Rivendell PE LLC offloaded shares worth Rs 675 crore.

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