The initial public offering of Sheela Foam Ltd, which makes mattresses and bedding products under the Sleepwell brand, attracted few investors on the second day of the issue and will likely struggle to cross the ropes with one day to go.
The IPO was covered only 6% at closing on Wednesday, stock-exchange data showed. The retail category was subscribed 7%, the portion for non-institutional investors was covered 1% and the quota for institutional buyers was subscribed 9%.
The issue was subscribed only 1% on Tuesday.
Analysts feel the offering is highly priced at a time market sentiment remains weak.
“Given the market conditions, where existing blue chips and quality mid-caps are ruling at mouth-watering valuations, investors and market may not pay much heed to the issue,” said Geetanjali Kedia, analyst at Premium Investments, the financial portal of securities firm SP Tulsian.com. “Faulty timing may harm the issue adversely. We expect a subdued response given the ongoing market bearishness, coupled with near-term negative impact of demonetisation.”
However, Rahul Gautam, managing director at Sheela Foam, said last week the issue could have been priced higher if not for the government decision to scrap Rs 500 and Rs 1,000 notes.
Reliance Securities’ analyst Sameer Deshmukh said that a sharp increase in inputs costs and the near-term impact of demonetisation were key concerns despite strong market leadership and sound fundamentals.
In a note to investors, Deshmukh said other listed consumer discretionary stocks have fallen 10-20% since the government on 8 November banned high-value currency notes, leading to a cash crunch in the economy.
In the grey market, Sheela Foam’s shares were quoting at a slight discount to its price band of Rs 680-730 apiece, said two dealers on the condition of anonymity. One dealer said retail investors were saving money for Laurus Labs Ltd’s IPO, which opens on 6 December.
The poor show in the first two days should worry Sheel Foam and its bankers as last week another IPO was scrapped after it failed to find institutional investors.
The IPO of GreenSignal Bio Pharma Ltd was the first after the government kicked off the demonetisation drive. The company withdrew the IPO after failing to garner sufficient bids despite reducing the offer size and extending the issue period.
To be fair, many issues do make a slow start but end with bumper oversubscription. Affluent investors and institutional buyers tend to join in droves only on the last day of the IPO period.
Sheela Foam is seeking a valuation of as much as Rs 3,561.14 crore (roughly $520 million) through the IPO. It had raised Rs 153 crore ($22 million) from anchor investors on Monday.
The issue entirely comprises an offer for sale by one of the promoter companies, Polyflex Marketing Pvt Ltd, and the firm will not get any money from the IPO. The overall issue is worth Rs 510 crore ($77 million). Post the issue, the Gautam family is likely to retain around 86% stake in the entity.
Sheela Foam filed its IPO proposal with the Securities and Exchange Board of India in July. The company received regulatory clearance for the proposed IPO on 2 November.
Edelweiss Financial Services Ltd and ICICI Securities Ltd are the merchant bankers for the IPO.
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