Indian IPO Pricing Shocks


October 30, 2014

Sensex, the Bombay Stock Exchange’s benchmark index, is up 26% year to date, according to Investor’s Business Daily. It is outperforming other global indexes, according to the Economic Times. Despite that only 13 companies have filed for an IPO. The holdup is not in demand for new issues, apparently. The article describes two recent offerings that were more than 50 times oversubscribed in the IPO run-up. The holdup is on the supply side – with some companies seeking private equity to improve their balance sheets rather than floating, and still others seeking to float at revenue P/E multiples that reportedly shocked even pre-IPO fund managers. The example given was a wool textile manufacturer seeking a valuation of 35 times forward earnings, which is the kind of multiple seen for companies in the consumer goods sector. Elsewhere in the same paper, analysts said that a P/E multiple for a consumer goods company in India is normally around 18X forward earnings, so at least half of the current valuations based on current macro trends.

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