The Securities and Exchange Board of India (SEBI) has initiated approvals for pricing of initial public offerings. This wasn’t necessary until a few months ago.
This is important because IPO prices are one of the key aspects that can affect a company’s post-listing performance and are often disrupted in hot markets like this year.
“The regulators are currently doing a soft sign-off on the product’s price range. They are trying to understand whether the pricing is broadly in line with listed peers,” said a senior banker.
Therefore, even if listed peers are trading at 20 to 30 times the previous fiscal year’s price-to-earnings ratio, there is no way a listed company could be trading at a price-to-earnings ratio of 50 to 60 times, the banker said. said. Or if a private equity deal six months ago valued the company at Rs 8,000 crore, you cannot enter the market at a valuation of Rs 30,000 crore.
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Burden on bankers
That said, the onus is still on the banks to set the issue price as they wish, and regulators will not go into the details of the company’s valuation, the bank official said.
The valuation of a prospective IPO company is determined by several other factors, including past financial performance, future growth potential, demand for the stock during roadshows, and market conditions.
“Regulators generally do not provide any information regarding pricing. The sign-off is more of an operational step that extends the approval process by a day or two. There is no difference,” said another bank official familiar with the matter.
However, he added that regulators are ensuring that the key risks are clearly described in the draft prospectus to enable investors to make informed decisions.
“Big step”
“It would be a big step if the regulator changed the criteria for approving pricing.However, SEBI does not have the power to decide on pricing, so any further tightening would be regulatory overreach.Banks “All we can do is ask homes to highlight where risks may appear,” he said.
An email sent to SEBI did not elicit an immediate response.
SEBI maintains its non-interfering position in the pricing and valuation of offerings. However, if the IPO price differs significantly from the price offered in pre-IPO or previous transactions, issuers must disclose the reasons.
According to reports earlier this year, SEBI has decided to sell shareholders of companies seeking an IPO out of fear that they may be involved in IPO pricing and unduly influence pricing to the detriment of investors. He said he felt resistance.
Investors have profited from the majority of listings this year, with 55 of the 69 companies that went public closing with a profit on their first day, suggesting pricing has been less aggressive.
Foreign portfolio investors sold shares worth Rs 1,142 crore in the spot market in October, while they invested Rs 19,842 crore in the primary market. VK Vijayakumar, chief investment strategist at Geojit Financial Services, said this is because most issue prices in the primary market are priced at fair valuations, while benchmark indices trade at higher valuations. Ta.
Pointer:
hands-off approach
* SEBI consent required for IPO price band
*Prices must match listed peers
* Bankers are still free to determine valuations
*IPO valuation is a function of financial metrics, past trading, growth potential, investor reaction, and market conditions
* Aggressive pricing may affect a company’s performance after going public
