The third day proved lucky for Tata Capital’s Rs 15,500-plus IPO (Initial Public Offering). The promoter, Tata Sons, which is going through anguish and pain of its own that is related to its promoters, Tata Trusts, heaved a small sigh of relief, when the issue was oversubscribed in the early hours of yesterday. By the late afternoon, the subscription was 2x. Yet, there are a few aspects, which will niggle the company, and its promoter in the immediate future. The issue was supposed to fly, given the benign pricing, almost a fourth of the highest price in the grey market weeks before the issue. The fact that it did not, and required a huge push from the institutional investors, high-net worth individuals (HNIs), and employees, poses problems.
Retail investors, despite the goading from the brokerage houses to subscribe given the low offer price, shied away. By late afternoon yesterday, the retail potion was marginally oversubscribed, 1.1x. In fact, the feeling before the IPO was that the small investors would queue up, given the Tata brand name, Tata Capital’s financials, and the final price band. However, there were several reasons that kept them away, and did not inspire them. One of them related to the internal problems within the Tata Group, the boardroom tussles at Tata Trusts, which are majority owners of Tata Sons. News that Home Minister Amit Shah, and Finance Minister Nirmala Sitharaman summoned Noel Tata, and other trustees to New Delhi proved to be a dampener. The future seems uncertain.
In addition, the cyberattack on Jaguar-Land Rover, lack of insurance, and additional time it took to recover from it created doubts. There was the demerger of Tata Motors to reckon with. Tata Sons needed to get listed by September 30, as per the rules of the Reserve Bank of India, and the central bank’s clarification that it can continue unless its license was suspended did not boost confidence, especially among the retail investors. Such news does not trouble the biggies, and institutions, but someone who needs to decide whether to invest her savings, and hard-earned money turns cautious. In most cases, such news, which was on social media on a minute-by-minute basis over the past 10 days tightened the small investors’ purse strings.
From the beginning, the institutions were clear-headed. They were not interested in the listing price, when most small investors and HNIs tend to sell, and book profits. They were in for the long-term, and long haul. During the pre-IPO allotment, Life Insurance Corporation, the largest stock investors in the country, picked up more than two crore shares worth nearly Rs 700 crore. Foreigners such as Goldman Sachs, Morgan Stanley, Nomura, and Norway’s sovereign wealth fund bought the shares. Hence, it was assumed that other institutions would stand in the queue. They did, and they had subscribed nearly 3.5x of their portion by the late afternoon on the third and final day. HNIs, and non-institutional buyers purchased almost 2x their portion. The two pushed up the overall figure.
It seemed like a no-success, and we say this because LG’s IPO that hit the market before, was oversubscribed on the first day. More worrisome was the grey market price related to the listing price. It hovered between 1-2 per cent, which implied that the punters and speculators expected the Tata Capital stock to trade at Rs 332 when it is listed, compared to the offer price of Rs 326. Considering that the grey market premium was over Rs 1,100 a couple of weeks before the IPO, which came crashing down to around Rs 500, when the low offer price became clearer, the listing price seems unappetising. There are minimal chances to make money, and this deterred several retail investors, and HNIs. It also does not augur well for Tata Capital.
On the valuation front, there are two views. The first is that Tata Capital deliberately lowered the offer price, compared to pre-IPO grey market premium, to entice the retail investors, and offer them an opportunity for a huge upside. But some experts believe that the valuation at the lower offer price, which equaled players like Bajaj Finance, was still high. One of them felt that Tata Capital benefited from a premium due to the reputed and established Tata brand name. In addition, the pre-IPO merger with Tata Motors Finance did expand the footprint, and added scale and product diversification. But it simultaneously pulled down return on equity, and return on assets, which will improve in the future. Thus, the investors were dissuaded by the drop in the pre-IPO grey market, and merger.
One can argue that some investors were unhappy because the IPO was partly a route for the promoter, Tata Sons, and other global institutional investors to cash out. Tata Sons, which owned almost 89 per cent pre-IPO, got rid of 23 crore shares, and the International Finance Corporation sold another 3.58 crore. In fact, the fresh issue of equity, at 21 crore shares, was less than what the promoter sold. Hence, more than half of the proceeds from the IPO would flow into private and institutional coffers, with the company using the remaining amount to strengthen its capital base, and support growth and lending activities. In most cases, retail investors dislike this, even if the promoter is the esteemed House of Tata.
