The initial public offering of software services company Happiest Minds Technologies Ltd was fully subscribed within a few hours on the first day of the issue on Monday thanks mainly to high demand from retail investors.
The offering of about 23.26 million shares—excluding the anchor investors’ portion—received bids for nearly 66.71 million shares. The book was subscribed 2.86 times at the end of day one, stock exchange data showed.
Retail investors bid for 14.6 times their quota while the portion set aside for non-institutional investors such as corporate houses and high-net-worth individuals (HNIs) was covered 61%.
Institutional investors bid for about 8% of their quota, stock-exchange data showed.
However, at least 75% of Happiest Minds’ IPO is reserved for institutional investors, owing to its past three-year profitability track record. In a typical IPO, at least 50% of shares are reserved for institutional investors, 35% for retail investors and 15% for non-institutional and non-retail investors such as corporate bodies and HNIs.
The company turned profitable in 2018-19 with a net profit of Rs 14.2 crore on revenue of Rs 590.4 crore. It had reported a loss of Rs 22.5 crore for the year ended March 2018 on revenue of Rs 463 crore. Its consolidated net profit for 2019-20 jumped to Rs 71.7 crore on revenue from operations of Rs 698 crore.
A smaller allocation portion for retail investors and a spike in grey market premium perhaps explains the urgency of bids by retail investors.
On the grey market, shares of Happiest Minds were quoting at a premium of Rs 130-140 apiece over its price band, two grey market dealers told VCCircle. The grey market is a pseudo, over-the-counter market where IPO shares are traded before the official listing on a stock exchange.
Ahead of the IPO, Happiest Minds raised Rs 315.9 crore ($43.13 million) from a bunch of anchor investors that included Singapore sovereign wealth fund GIC Pte Ltd.
Hedge funds and public markets funds managed by Avendus Capital, Sumeet Nagar-led Malabar Investments and IIFL Asset Management Ltd also took part in the anchor allotment, stock-exchange data showed.
Bengaluru-based Happiest Minds, which is backed by private equity investor JP Morgan CMDB II, allotted a little more than 19 million shares at the upper end of the Rs 165-166 per share price band to 25 institutional investors.
The IPO closes on Wednesday. The company is targeting a valuation of as much as Rs 2,438 crore through the IPO that comprises a fresh issue of shares worth Rs 110 crore and an offer for sale of shares worth up to Rs 592 crore by the company’s founder Ashok Soota as well as JP Morgan CMDB II.
JP Morgan CMDB II will exit its over five-year investment in the company with handsome returns, VCCircle reported in June after the company filed its draft red herring prospectus with the capital markets regulator.
The IPO will result in 28.79% stake dilution on a post-issue basis. Soota's stake will fall to 40.89% after the IPO from 48.83% at present.
ICICI Securities and Nomura Financial Advisory and Securities (India) Pvt. Ltd are the merchant bankers arranging the share sale.
