Parag Dairy fails to attract institutional investors; cuts IPO price band, extends issue

Dairy firm Parag Milk Foods Ltd has cut the price band of its initial public offering (IPO) and extended the issue closure as it failed to see the minimum subscription level by institutional investors.

This marks the second such dairy firm to struggle to cross the ropes after Prabhat Dairy Pvt Ltd. Prabhat Dairy also had to cut the price band and extend the IPO period after poor investor response last September.

This shows how the public market investors are not so keen to take a sip of a business that has attracted loads of private equity funding. Indeed, both Parag Milk and Prabhat Dairy are backed by PE firms.

Parag Milk, which opened its IPO on May 4, was to close the issue on Friday, May 6. It has now extended the issue for three more business days till May 11. It has also cut the lower end of the price band of the issue from Rs 220 to Rs 215 a share. The upper end of the issue, at which the anchor investors had picked up shares earlier this week, has been retained at Rs 227 a share.

The issue was fully covered and was actually oversubscribed 32%, led by bids by high networth individuals (HNIs), corporates and retail investors. The HNI and corporate portion of the issue was oversubscribed 1.6 times while the retail investors' portion was oversubscribed 70%.

The institutional investors' portion just about managed to cross the half-way mark.

Parag Milk needs to allot at least 75% of the shares on a proportionate basis to qualified institutional buyers, 15% to non-institutional investors, comprising HNIs, and 10% to retail investors.

In a statement, the bankers managing the IPO said the issue has been extended by the Pune-based company “to accommodate pending demand from certain international and domestic investors against the backdrop of volatile stock markets in the week of May 2-6, 2016.”

"As there were regional holidays in Asia during the issue period, the company expects additional interest from QIBs in the extended issue period," it added.

The issue got off to a slow start on day one as HNIs and corporate investors largely stayed away, and retail and institutional investors too barely took interest.

Even if the firm manages to find institutional investors to sail through, it may not give a pop-up listing gain or be a trailblazer after its market debut.

Prabhat Dairy’s shares made a tepid debut on the stock markets. Shares of Prabhat Dairy have barely changed since listing.

Ahead of the IPO, Parag Milk had raised Rs 342.86 crore ($52 million) from a clutch of anchor investors, including sovereign wealth funds of Norway and Abu Dhabi. Other investors include funds under Nomura, Morgan Stanley, Tata MF, Neuberger Berman and Quantum.

The IPO comprises a fresh issue of shares to raise Rs 300 crore and an offer for sale of about 20.05 million shares that could mobilise almost Rs 470 crore for the sellers.

The dairy firm has trimmed the fresh issue and slightly increased the offer for sale. In the draft red herring prospectus filed in October, Parag Milk had proposed to raise Rs 325 crore through the fresh issue and had pegged the number of shares to be sold by IDFC Alternatives and Motilal Oswal Private Equity and other shareholders at 19.85 million.

IDFC Alternatives has retained the number of shares it is selling at the same level in the red herring prospectus, but Motilal Oswal PE is now selling more than previously announced.

IDFC Alternatives and Motilal Oswal PE hold 19.21% and 9.11% stake in the company, respectively, besides convertible debentures that will be converted into equity. Both are part-exiting.

VCCircle was the first to report that Parag Milk might look at listing its shares even as other media reports suggested that it was in talks with various strategic players, including Dutch dairy cooperative FrieslandCampina to sell a majority stake.

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