Largest Indian IPO In 18 Months Fails To Sail Through

The initial public offering (IPO) of Samvardhana Motherson Finance Ltd, the holding company of the automotive component manufacturing group Samvardhana Motherson, has failed to sail through and has been subscribed just 23 per cent or less than a quarter, according to stock exchange data. This may come as a major downer for the primary market in the country and put a question mark over the prospects of large-sized IPOs.

The company has now withdrawn its IPO due to the poor response, according to a statement issued. Several companies started to test capital markets earlier this year on the back of the rising Sensex. Companies like Multi-Commodity Exchange (MCX) and Mahesh Tutorials saw successful issues, but the IPO of the jewellery retailer Tribhovandas Bhimji Zaveri (TBZ) barely scraped through. The latest casualty is not the first such case in recent times as earlier this year, Goodwill Hospitals withdrew its IPO while Galaxy Surfactants pulled out its IPO in May 2011 due to poor response.

Samvardhana Motherson was eyeing Rs 1,665 crore or over $300 million through the public issue, which included a fresh issue of Rs 1,344 crore and an offer for share sale worth Rs 321 crore by the promoter group entity Radha Rani Holdings Pte Ltd. The issue was the largest public offering in the country since Coal India came with a multi-billion-dollar IPO in October 2010.

The company had set a price band of Rs 113-Rs 118 and raised Rs 222 crore from four anchor investors including the Government of Singapore (which invests in India through two of its sovereign wealth funds), Birla Sun Life Mutual Fund, Royal Bank of Scotland PLC and IVY Pacific Opportunities Fund.

A chunk of the bids for the IPO came at the lower end of the price band in a public issue, which was mostly subscribed by FIIs, according to the BSE data. Samvardhana Motherson was looking at a post-money valuation of Rs 6,685 crore ($1.3 billion) at the lower end of the price band.

Standard Chartered Securities (India) Ltd and JP Morgan India Pvt Ltd were book running lead managers to the issue.

In another development related to the group, MS Gujral, chairman of the group’s flagship company Motherson Sumi, passed away on Friday. He was an independent director and was on the board for the last two decades.

Samvardhana Motherson Finance is the holding company of the automotive business of the $2.7 billion group, which includes 18 subsidiaries, 19 joint ventures and 86 other consolidated entities. The flagship of the group is the BSE-listed Motherson Sumi Systems Ltd, which is a joint venture with Japan’s Sumitomo Wiring Systems.

The IPO proceeds were expected to be used for repaying debt (Rs 338.5 crore), investments in Samvardhana Motherson Polymers & Samvardhana Motherson Holding (Rs 627.5 crore) and investments in the rear view mirror business (Rs 156 crore).

The group has been an aggressive acquirer of overseas firms. Samvardhana Motherson acquired the rear view mirror business of UK’s Visiocorp in a stock-cum-cash deal for $31.63 million or Rs 163 crore a few years ago. Last year, the group also bought 80 per cent stake in Germany-based Peguform Group for $200.25 million through an SPV, which is 51 per cent owned by Motherson Sumi and rest by Samvardhana Motherson Finance.

Samvardhana Motherson Finance saw its consolidated income grow from Rs 936 crore in FY09 to Rs 6,024 crore for the nine-month period ended December 31, 2011. However, its bottom line suffered and its consolidated net profit after tax decreased during the same period, from Rs 68.69 crore to a loss of Rs 127.8 crore.

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