IPOs is a critical step that involves taking a private company to the public market – a step that, if well taken, may take the company to a higher level, but if poorly executed, may lead to the destruction of the very company. The IPO market regulations have experienced a flood of successful and awful public offerings as the lesson for the business companies in India. In this paper, authors have discussed few Indian IPO phenomenas, successful and less, need to find out why the deals went successful or unsuccessful, and what could be learn from those for future public companies.
The Glittering : Success Stories
1. Infosys (1993)
Success Mantra: Specifically, visionary leadership and strong fundamentals were addressed.
Infosys, which is now a very large powerful IT Giant, was launched at the market with a small IPO in 1993. Morgan sold it at Rs. 95 per share and when it first debuted it was actually undersubscribed and to make sure the deal went through Morgan ended up buying a 13% stake in it. But what happened was, this is the perfect example of evening how a company with ironclad fundamentals and a strong leadership’s is capable of experiencing tremendous growth. Narayana Murthy and a team at the helm of infosys brought efficiency, competency and auspicious to enhance the quality of service delivery together with innovation with full disclosure of information in a certain period to its investors. By using this approach, it not only developed investor confidence but also developed its reputation in the global market by which it’s has experienced increased stock prices for the years.
2. Avenue Supermarts (D-Mart) (2017)
Success Mantra: Established Brand and Market Domain
D-Mart’s parent company Avenue Supermarts floated its IPO in the month of March, during the year 2017. Being offered at Rs. 299 per share the issue was many folds oversubscribed at over 100 times. The strong business model of D-Mart was formulated on the pillars of low product price, high stock turnover, and an effective supply chain strategy. The management’s attitude toward high profitability even while the company was growing rapidly was well received by investors. Now, Avenue Supermarts has become one of the most valuable retail companies in India, proving the importance of establishing a powerful brand and sound operational tactics.
3. HDFC Asset Management Company Limited, Annual Report, (2018)
Success Mantra: Market leadership and trust are important in the, organizational success so that it can make significant achievements and growth in its strategic business operations.
In 2018, HDFC AMC, one of India’s premier mutual fund managers, mobilised money through an IPO and its shares floated at Rs. 1,100. IPO was subscribed 3/4 part of it on the first day itself and almost 83 trillion times overall. Thus, HDFC had a strong brand, and ahead of its peers with respect to asset management, which triggered investors’ interest. The company sustained its performance, continued to foster a strong distribution channel, and provided investors with the knowledge needed to invest confidently and make the right decisions concerning the company and its stocks. This case clearly illustrates how a company that enjoys a leadership status within its market and a credible performance history can fully embrace an IPO process.
The Cautionary Tales
1. Reliance Power (2008)
Pitfall: Over-Promising and Under-Delivering
This was arguably one of the most overhyped public offerings in Indian IPO history – Reliance Power IPO in 2008 which raised Rs. 11,563 crore. The issue was priced at Rs. 450 a share and attracted subscriptions 73 times the number of shares on offer. This was followed by an era of disillusionment because the company failed to implement its grand strategies. Project implementation delays, bureaucratic issues, and rising costs adversely affected the company’s performance and it reflected in the low stock price of the company. Thus, Reliance Power’s case shows that over-promising leads to severe consequences, and this kind of behavior must be eliminated together with hasty promotion of projects without serious planning and rigorous project implementation.
2. Jet Airways (2005)
Pitfall: Market conditions and financial management or misuse of funds.
In 2005 Jet Airways under took its IPO and with an issue price of Rs. 1,100 the share had a positive start. But eventually the airline was forced to compete in a very competitive market, experienced skyrocketing fuel costs and internal management problems. These issues worsened with the emergence of the 2008 global financial crisis that saw debts rise and operations reach the red zone. Due to the accumulated problems mentioned above, by 2019, Jet Airways became one of the most significant aviation failures in India. It shows how market conditions and improper management of the company’s financials can cause havoc to the company despite its potential at the very beginning.
3. New India Assurance (2017)
Pitfall: Inadequate appreciation of Target’s market and issues regarding valuation critical appraisal.
The state-owned New India Assurance joined the stock market in the year 2017 with initial stock prices of Eight hundred rupees. Even a giant company from the insurance sector could not generate much interest when it came to IPO and the stock has been rather poor from then on. Analysts and shareholders equally had issues on dox on high valuations, underwriting losses and overall for regulatory environment. Coupled with New India Assurance’s valuations experience, it becomes clear that there should be some level of understanding of market sentiments could not have been overestimated for valuation.
Some Key Takeaways from the Current Fiscal Year Aspiring Public Companies
Solid Fundamentals and Leadership: In other words, the companies are studying the nature and structure of leadership, its stability and soundness of individual business and corporate management model are more likely to achieve greater success in the future. Two key factors for the success of any form of governance: ICSi and vision – namely, the transparency of the underlying process.
Market Position and Brand Strength: Greater awareness of the market and brand therefore positively influences the viewers’ confidence. Managers had to establish and sustain a favourable image of the brand in the market.
Realistic Projections and Execution: This leaves the investors dissatisfied and realizing they were sold a dream rather than given an honest picture of the company and its potential. RB managers who have to manage and allocate resources should, therefore, strive to give realistic forward-looking goals and implement them as accurately as possible.
Market Conditions and Adaptability: Having grasp about the market and new circumstances is very important. Several rules concern general economic instability and competitiveness threats that firms need to face.
Valuation and Investor Sentiment: The correct real estate worth and sentiment of investors are vital to get right. Overvaluation can help to repel possible buyers, whereas undervaluation stimulates undervalued stock performance.
Conclusion
It makes some sense to provide an overview of the key problems and possibilities that might be encountered throughout the process of transforming a private organization into a public one. From the power houses like Infosys, Avenue Supermarts, to HDFC AMC, it is evidence that companies can indeed reap exceptional success when they formulate perfect strategies, possess a competent leader, and have good fundamentals.
On the other hand, the case of Reliance Power, Jet Airways, and New India Assurance have brought out the potential of companies to fall from their lofty promises, corporate governance issues, and failure to read the mood of the market respectively. If the companies listed in the table of below are considered, the aspiring public companies must follow this example and get prepared to incorporate the best practice and avoid the biggest mistakes to play well in the IPO environment.
FAQs on Case Studies of Successful and Failed IPOs in India
1. What are some notable successful IPOs in India, and what factors contributed to their success?
Answer: Some notable successful IPOs in India include Reliance Industries, Infosys, and Avenue Supermarts (DMart). The factors that contributed to their success include:
- Strong Business Model: These companies had a clear and robust business model with a proven track record.
- Market Position: They occupied a strong market position in their respective industries.
- Management Quality: Effective and experienced management teams were in place.
- Investor Confidence: These companies successfully built investor confidence through transparent and strategic communication.
- Economic Conditions: Favorable economic conditions and market sentiment at the time of the IPO.
2. Can you provide examples of failed IPOs in India and the reasons behind their failure?
Answer: Examples of failed IPOs in India include Reliance Power and Jet Airways. Reasons for their failure include:
- Overvaluation: Companies like Reliance Power were perceived as overvalued, leading to poor post-IPO performance.
- Financial Instability: Jet Airways faced significant financial instability and debt issues.
- Market Conditions: Unfavorable market conditions and timing played a critical role in their poor performance.
- Lack of Investor Confidence: Inadequate investor confidence due to unclear business prospects or lack of transparency.
3. What lessons can aspiring public companies learn from successful IPOs?
Answer: Aspiring public companies can learn several lessons from successful IPOs:
- Prepare Thoroughly: Ensure that the company is well-prepared in terms of financial health, market positioning, and compliance.
- Transparent Communication: Maintain transparency with investors and stakeholders about the company’s goals, strategies, and financials.
- Timing is Key: Choose an optimal time to go public, ideally during favorable market conditions.
- Strong Management Team: A capable and trustworthy management team can significantly boost investor confidence.
- Focus on Long-term Growth: Emphasize sustainable, long-term growth rather than short-term gains.
4. How can companies avoid common pitfalls that lead to failed IPOs?
Answer: To avoid common pitfalls, companies should:
- Avoid Overvaluation: Set a realistic valuation based on thorough market and financial analysis.
- Financial Stability: Ensure robust financial health and manage debt effectively before going public.
- Market Timing: Be mindful of market conditions and choose an appropriate time for the IPO.
- Investor Relations: Build and maintain strong relationships with investors through consistent and honest communication.
- Risk Management: Identify and mitigate potential risks proactively.
5. What role do regulatory frameworks play in the success or failure of an IPO in India?
Answer: Regulatory frameworks play a crucial role in the success or failure of an IPO in India:
- Compliance: Adhering to regulatory requirements ensures a smooth IPO process and builds investor trust.
- Disclosure Norms: Proper disclosure of financials, risks, and business plans as mandated by regulatory bodies like SEBI (Securities and Exchange Board of India) is essential.
- Investor Protection: Regulations aimed at protecting investors can enhance confidence and participation in the IPO.
- Market Surveillance: Regulatory oversight helps in preventing market manipulation and ensures fair trading practices.
- Facilitation and Support: A supportive regulatory environment can facilitate smoother processes and address any issues that arise during the IPO journey.
By understanding these factors and lessons, aspiring companies can better navigate the complex landscape of going public and increase their chances of a successful IPO.
