Prabhat Dairy IPO scrapes through after PEs cut shares on sale
Photo Credit: Prabhat Dairy also makes value added dairy products

Ahmednagar-based Prabhat Dairy Pvt Ltd's initial public offer (IPO) managed to sail through on the final day, after its private equity backers decided to cut the offer-for-sale portion of the issue by half, the second such IPO to face such a fate this year.

The firm had extended the issue closure by three days and also cut the price band, after it failed to clear the ropes on the third and final day on September 1. The public issue had opened for subscription last week (August 28).

On the final day of the extended issue period, the firm continued to struggle and just managed to see through over 76 per cent subscription. Depending on the final issue price, it can raise between Rs 357-396 crore based on the revised price band.

It had previously cut the price band from Rs 140-147 a share to Rs 115-126 and said the issue would now close on September 4. It also offered a discount of Rs 5 a share to retail investors.

Only the non-institutional and non-retail portion of the issue was subscribed fully that too led by corporate investors.

While the QIB portion was covered around 88 per cent, the corporates & HNI portion was oversubscribed 42 per cent. The portion of the issuer reserved for retail investors saw the worst reception despite the extra price discount and was covered around 26 per cent only.

Prabhat Dairy, an integrated milk and dairy products company catering to institutional as well as retail customers, had offered 36.4 million equity shares to raise up to Rs 300 crore through a fresh issue besides an offer for sale of up to 147 million equity shares.

Rabo India PE and French development financial institution Proparco were looking to part-exit.

When contacted by VCCircle, Rajesh Srivastava, chairman and managing director of Rabo Equity Advisors (Rabo India PE), that manages agri-focused Indian private equity fund, blamed the poor investor response to the issue to poor market conditions.

Incorporated in 1988, Prabhat Dairy markets dairy products under Prabhat, Flava and Milk Magic brands. It is a regional player with operations mainly in Maharashtra.

As of March 15, 2015, the company had an aggregate milk processing capacity of 1.5 million litres per day. The poor response to its issue is also a blow for the dairy sector at large that has attracted lot of private capital over the last few years.

Edelweiss Financial Services, Macquarie Capital Securities and SBI Capital Markets are the book running lead managers to the issue.

The public issue was covered around 15 per cent on day 1 and just 20 per cent at the end of day 2, bulk of it coming from qualified institutional buyers (QIBs), after it did not bring in anchor investors. It crawled to 28 per cent subscription at the end of day 3.

While just over a third of the overall issue was covered at the end of the fourth day despite a cut in issue price band, at the end of day 5, about 42 per cent of the issue was covered leaving the fate of the IPO hanging for the last day.

This is the second IPO to have failed to sail through in the original issue period. In March, another PE-backed firm, theme parks operator Adlabs Entertainment Ltd, had to extend the issue period and cut the issue price band to see through the IPO. It finally managed to clear the ropes with 10 per cent oversubscription on the last day.

Prabhat Dairy also happens to be the second PE-backed issue where the overall issue size had to be cut to see it through. In March, regional cable TV and broadband distribution firm Ortel Communications Ltd managed to see through its IPO after its private equity backer, New Silk Route, decided to cut the offer-for-sale portion of the issue.

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