Dairy firm Parag Milk Foods Ltd saw one-tenth of its initial public offering (IPO) covered on the first day as high-net-worth individuals (HNIs) and corporate investors largely stayed away and retail and institutional investors too barely took a sip.
Institutional investors’ portion was covered 12.7% while retail investors bid for around 15% of the shares reserved for them. HNIs and corporates bid for just under 3% of their portion, exchange data showed.
Although many public issues start slow but get oversubscribed multiple times on the final day, this signals a poor investor interest to begin with.
Parag Milk will be the second dairy firm to float an IPO after Prabhat Dairy Pvt. Ltd within a year. Prabhat Dairy’s IPO in September last year had received a poor response and its shares made a tepid debut on the stock markets. Shares of Prabhat Dairy have barely changed since listing.
Ahead of the IPO, Parag Milk 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.
It finalised the allocation of 15.1 million shares to the anchor investors at the upper end of the Rs 220-227 price band.
Abu Dhabi Investment Authority and Norwegian sovereign fund Government Pension Fund Global picked around one-tenth of the anchor allotment, each.
The IPO that ends on May 6 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.
Parag Milk is seeking a valuation of as much as $300 million (about Rs 2,000 crore) in the IPO.
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.
The company received approval from the Securities and Exchange Board of India (SEBI) for the IPO earlier this year.
Of the proceeds of the fresh issue, the firm plans to use Rs 150 crore for expansion and modernisation of its manufacturing facilities at Manchar, near Pune, and at Palamaner in Andhra Pradesh. It also plans to use the funds to repay working capital loans of Rs 100 crore and for general corporate purposes.
The issue is being managed by Kotak Mahindra Capital, JM Financial Institutional Securities, IDFC Securities and Motilal Oswal Investment Advisors.
Founded in 1992 as a milk distributor, Parag Milk has developed into a dairy-based branded consumer products company. It makes products such as cheese, ghee, fresh milk, whey protein, paneer, curd, yogurt, milk powder and dairy-based beverages.