Tata Capital IPO: DRHP updated; marketmen see price band 50% below unlisted market price!

Tata Sons backed Tata Capital has filed an updated DRHP with the capital markets regulator Sebi to launch its initial public offering (IPO). Tata Capital, which includes a fresh share and offer-for-sale (OFS) components in its IPO, will cumulatively offer 47.58 crore shares in its primary offering.

The Tata Sons-backed non-banking financial services company (NBFC) will issue up to 21 crore new shares, while existing shareholders will offload up to 26.58 crore shares. Tata Sons is planning to sell up to 23 crore shares, while International Finance Corporation shall be offering up to 3.58 crore shares.

Tata Capital initially filed confidential IPO papers in April and a green signal from India’s market regulator last month to proceed with the offer. According to reports, Tata Capital is likely to raise around Rs 18,000-19,000 crore via its primary stake sale, which indicates that the offer price may be at a steep discount compared to its current unlisted share price.

Interestingly, at the reported fund raising plans, Tata Capital may issue its shares around Rs 375-400 apiece during the IPO. However, the stock is currently trading at Rs 775-800 per share in the pre-IPO market, suggesting that IPO is likely to be launched at around 50 per cent discount from the unlisted market levels. Even the dealer active in the pre-IPO space second the notion.

One should note that shares of Tata Capital have already corrected in the unlisted market in the last couple of months. The stock was exchanging hands at Rs 1,050 a couple of months ago, and has fallen nearly 25 per cent from those levels. Market participants are expecting a strong response for the Tata Capital IPO.

Sandip Ginodia, CEO of Kolkata-based Altius Investech said that the stock has been in a corrective phase for the last few weeks as the volumes have declined ahead of the mega IPO launched by the company. "Investors are looking to buy the stock as limited allotment is there in the IPO, but we expect an IPO of Tata Capital in the range of Rs 400-450 apiece," he said.

On June 26, The company board of Tata Capital announced to raise Rs 1,751.85 crore via rights issue by offering 5,10,74,292 equity shares at an issue price of Rs 343 apiece. The rights entitlement ratio has been set in the 1:78 ratio, meaning one equity share for every 78 equity shares held by existing shareholders. The rights issue will open on July 4 and shall conclude on July 13.

Hitesh Dharawat, co-founder of Mumbai based boutique firm Dharawat Securities said that Tata Capital IPO should offer share around or slightly above the rights issue price. "Tata Capital shall draw a strong investor interest considering the Tata brand name, solid fundamentals and sound business profile," he said.

Net proceeds from the fresh issue will be used to meet the company's future capital requirements including onward lending, while Kotak Mahindra Capital, BNP Paribas, Citigroup Global Markets are among the book running lead managers of the offering.