Promoters, management team a big differentiator for IPOs: S Ramesh, CEO, Kotak Investment Banking
We are in an environment where the quality of the promoters and the management team will be a big differentiator, said S Ramesh, CEO, Kotak Investment Banking. In an interview to Dia Rekhi and Reena Zachariah, he said markets and investors demand a price for volatility. Edited excerpts:
Are companies delaying their IPO plans becaof market volatility? We are coming out of the backdrop of a pretty good year for primary markets. Now, we are against global headwinds. The real issue is volatility. For an issuance, volatility in the markets is the enemy. It is always tough for issuers to determine pricing. The IPO pipeline we have is pretty healthy. The sectors to which they belong are also good sectors — broadly in consumption, automobiles, BFSI, healthcare.
What we need to analyse carefully is that for every company there is a fair value, robust markets by which I mean when secondary markets are stable. We think that fair fundamental value is the basis on which an IPO pricing happens. When markets are volatile, the tendency to go off the fair market value is a little higher. Generally, it can be on the lower side. If it is a volatile market of the conditions we are seeing today where the headwinds are stronger, the pricing tends to navigate below the fair price becamarkets and investors demand a price for volatility. We are in that situation
We''ve seen some new themes emerge with the last few IPOs. What do you have to say about that? The kind of IPOs we have in the pipeline are around very interesting themes — consumption, many of them are non-standard like healthcare, which are resilient to the general economy. Earlier the IPOs were dominant around real estate and infrastructure, this year we have not had a single IPO in these sectors. There is a clear shift that has happened in the kind of IPOs that are happening and that is the trend we are seeing.
This year, I also see a reasonable number of private placements in capital market offerings from the BFSI segment. Now, whether it is PE investors or capital market investors, there is distinction they are making between offerings. So, there is a profitability track record but also growth possibilities. That is the kind of themes that are hitting the market.
We are in an environment where the quality of the promoters and the management team will be a big differentiator. So in market conditions like this, management team and promoters who can think on their feet, adapt to business models will be a big differentiator. I am not only talking about corporate governance. I am also talking about intelligent managements who are fleet footed and adaptable.
Traditionally, if you see promoters have tapped public markets to raise funds but now we are seeing private equity funds taking companies public. What is your view on this? My own feeling is that capital markets and PEs are competing for assets. Secondly, Indian promoters today, be it in M&As, PEs or capital markets, are pretty discerning. Three years ago, if we had met we would all have to go for IPO. But, today PE investors are ready to exit to another PE. Secondly, if it''s a willing promoter and the PE investor is holding a reasonable stake they may come together and say we may sell the company. I think the mindof an average entrepreneur is changing, therefore the way we look at exits is changing.
What is holding back startups from listing in India now that Sebi had put in place new regulations for them? I go back several years when book-building guidelines were announced in 1997 and the first book-building IPO happened in 1999. Startups today are themselves going through challenges. One they have tried to be disruptive, some of the business models have not taken off in runaway. Secondly, some of the startups have now represented that their immediate priority now is not to sort of get to listing but there are a lot of other issues around taxes, doing business some of that needs to get strengthened.
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