On September 1st 2018, the student fraternity at TAPMI had a very informative session with Mr. Sandeep Hasurkur, VP – Project Finance, IL&FS on the scope and future of Initial Public Offerings (IPOs). He explained the need for IPOs and their regulatory and compliance aspects. He elaborated on the emerging trends seen in the market regarding fundraising. Mr. Hasurkur began by asking the students about what they know about IPOs. He said that one should gain knowledge, think about it, absorb it and form one’s own opinions. this is what we’ll gain from doing an MBA – it will build our perspective.
He then elaborated on why IPOs are different from other forms of fundraising. the major distinguishing feature is that it involves interaction with the public. Any matter that involves the public has a deep regulatory aspect along with responsibility. Regulation in terms of qualification, compliance and disclosure are critical aspects of all functions that involve public interaction.
He then stated the reasons for going for an IPO – funding requirement for growth. When a company reaches a certain size a need will arise to get funding from the public. The IPO ecosystem is evolving at a rapid pace in India. There are many factors that affect the IPOs in India – Risk-return nature of the business, availability of capital, the requirement of capital and understanding the current market. All these factors have segmented a relatively homogeneous market.
Mr. Hasurkur then went on to elaborate on the trends seen in the IPO ecosystem by using movie analogies. He called the first trend ‘ Transformers’ – The irrevocable rise of private equity. It completely changes the composition of the IPO market. The rise of private equity captured the value in the market. The second trend ‘Kingsmen investment bankers’ –
The emergence of new technologies the characteristic of business models has changed dramatically. Customer acquisition and market share are the factors that are driving the business model today. A winner takes all poker game -in a distant and uncertain future. One aspect to be considered is the regulatory aspect whether this should be allowed. Another issue -the temptation to misrepresent there could be dud presented as a unicorn and the hype drives a buying mania in the public.
The third trend ‘Lion King’ – The composition of the market – a lions share of the market are herbivores and not unicorns. Private investors are not interested in these stable businesses. Stable businesses are the ones driving the business. The fourth trend ‘Red riding hood’ – The other industries that are approaching the public for funds are the loss-making businesses. High leverage system – evergreening no longer works. Dress it up as a unicorn and sell to the public. Many real estate companies are engaging in such acts.
The fifth trend ‘New flying monkeys’ – High Networth individuals (HNIs), anchor investor funds, Qualified institutional buyers (QIBs). The rise of the boom market economies. The rise in liquidity – changing investing opportunities. The sixth trend ‘Ghajini part’ – Cyclical boom and bust companies. The public has a short memory and forgets the past experience of the companies. The last trend ‘Finding Nemo’ – Living in a fishbowl. Increase in regulatory, reporting rules. Risk and compliance costs have raised. While concluding Mr. Hasurkur said that Indian markets have transformed. The Indian investors are seeking returns across different avenues.