The Security and Exchange Board in India (SEBI) has become more cautious while giving clearance to initial public offerings of the companies, consequently returning the draft papers of six companies looking forward to launching their IPOs. This write-up investigates the reasons behind SEBI’s stricter approach to IPO clearance.
SEBI returned draft papers from six companies, including Lava International, Oravel Stays, Paymate India, Go Digital General Insurance, Fincare Small Finance Bank, and BVG India. These companies seeking IPO clearance had planned to generate a collective amount of Rs.12500 crore through the primary market. As per a PTI report, these companies submitted their DRHP (Draft Red Herring Prospectus) to SEBI between September 2021 to May 2022, and SEBI returned their DRHP between January-March 2023.
SEBI turned stricter in its approach by giving green signals to IPOs because, in 2021, investors lost their money in a few high-profile IPOs. As per the data gathered by Prime Database, SEBI has taken an average time of 115 days to approve an initial public offering in 2022.
One97 Communications, the parent company of Paytm, was disappointed with its opening in the primary market. The company’s projected IPO of Rs 18,300 crore was the second biggest IPO after Coal India. While the Paytm share was still traded at 72% less than its issue price. Experts believe that the market regulator gives a solid message to merchant bankers to comply fully with the required details to furnish the DRHP and reveal all the information needed in advance. Previously, the SEBI gave a grace period to the majority of the firms to submit the complete set of documents to stay compliant.
In 2023, only nine companies approached SEBI with their DRHP amid the highly volatile market conditions. In addition, only two firms, including Divgi Torqtransfer Systems and Global Surfaces, offered their IPO stocks to generate ₹730 crores. It came after 38 firms collectively raised nearly ₹59,000 crores in 2022 through their initial public offerings. Though, these numbers are far lower than ₹1.2 lakh crore garnered by 63 companies in 2023.
Investors remain stressed throughout 2022 due to rising interest rates, skyrocketing inflation, and recessionary worries. However, experts believe that some IPO-related activities could only be seen during the third and fourth quarters of FY 23-24.
Paytm’s IPO Fiasco
One97 Communications, the parent company of India’s leading digital payment provider, Paytm, had a disappointing debut in the primary market. The company was listed at ₹1,955, around 9% less than its issue price of ₹2,150 on the Bombay Stock Exchange and National Stock Exchange. In addition, Paytm shares reached the lowest price at which stock is allowed to fall in the second half of the day. In contrast, the valuation of $20 billion Paytm was eying on, its current valuation is $16 billion, which is considerably lower. Considering the IPOs of companies with an issue size above ₹1,000 crores in the previous 10 years, Paytm’s IPO was the biggest crash registered on the listing day.
One97 Communications Ltd. is a mobile internet company offering digital payment services and goods through the digital platform. Over the years, it has been known for offering multiple bill payment solutions to e-commerce operators. One97 Communications’ offerings include tickets, mobile recharge, hotel booking, games, music, and video.
SEBI Asked Lava to Refile Draft IPO Papers
Home-grown mobile phone manufacturer Lava International submitted a Draft Red Herring Prospectus (DRHP) to SEBI in September 2021 to raise money through its IPO. The market regulator returned the DRHP and IPO papers to Lava International and asked to refile the documents with specific updates and modifications. The estimated value of the IPO shares was around Rs500 crore, and OFS components of 4,37,27,603 equity shares. The company was planning to accelerate its marketing and branding activities with the fund raised through the proposed IPO.
Lava International is a leading home-grown smartphone manufacturer focused on mobile handsets and solutions. The company is involved in designing, manufacturing, marketing, and distributing mobile phones, tablets and other related accessories under the brand names “Lava” and “XOLO”.
Opportunity Of Retail Investors
Until the market regulator SEBI does not approve the IPO of companies like Lava International and Paytm, retail investors can buy unlisted shares of these companies and reap ample benefits. The number says the unlisted market can grow your money manifolds and is less risky. With the emergence of online stocking broking platforms like Stockify, it has now become easier and more convenient to buy or sell unlisted shares under the supervision of industry experts. As a retail investor, you must know that the most vital aspect of investment is financial literacy. So, before investing in stocks, you must connect with experts with thorough experience and expertise in the stock market.