Consumer sector IPOs

Cello World’s successful listing on Monday is likely to rub off on the upcoming initial public offerings (IPOs) of consumer-centric companies, market experts said. The stock, which had received a 39x subscription, listed 28% higher at the exchanges.

Cello World listed at Rs 831 on the BSE — a 28.24% premium to its issue price of Rs 648 — and closed at Rs 791.90, down 4.7% from its opening price but at a significant gain of 22.2% over its issue price. It already commands a market cap of above Rs 16,800 crore.

According to data, there is a strong pipeline of consumer-centric IPOs to the tune of Rs 16,000 crore with regulatory approvals. Market players said the outlook remains strong due to good earnings visibility, especially in the backdrop of higher consumer spending across the country.

Ebixcash, Tata Play, and IndiaFirst Life Insurance are the biggest IPOs in the waiting list, with an estimated issue size of Rs 6,000 crore, Rs 2,500 crore, and Rs 2,000 crore, respectively.

Till now in FY24, 40 firms in the consumer space have hit the market and raised as much as Rs 9,500 crore from their IPOs. Of these, shares of 33 firms are trading above their respective offer prices. The biggest were RR Kabel and Sai Silks, with issue sizes of Rs 1,965 crore and Rs 1,201 crore, respectively.

“Consumer sector firms have been a market favourite, given the strong consumption story that we are witnessing in India. The penetration into the rural markets is the key, and the expected profitability of B2C companies is also strong,” said Rajendra Naik, Managing Director (Investment Banking), Centrum Capital.

The revival in consumption vis-à-vis the last two years has largely been on account of disposable income increasing in the hands of consumers and revenge spending, he added.

“Consumers are spending more than previous years as there is more money in their hands. The upcoming festive season is only expected to spur consumption even more. There is strong institutional interest in such IPOs, thanks to expectations of healthy returns in the medium term,” said Deepak Jasani, head of retail research at HDFC Securities.

For example, Cello World’s price band was set at Rs 617-648 a piece. It had earlier mopped up Rs 567 crore from anchor investors. The portion reserved for Qualified Institutional Buyers or QIBs saw a stellar 108.6x subscription, even as its employee and retail portions saw a relatively lukewarm response.

“In the case of Honasa, it would be prudent to wait and watch. We’ve seen the likes of Paytm, Zomato, and Nykaa, which listed with a lot of fanfare but underperformed for an extended period. A strong brand name and good marketing don’t necessarily translate to a good performance in the markets,” said a banker who did not wish to be named.