The price band for private equity backed Sadbhav Infrastructure IPO has been set between INR100 and 103 per share. The IPO will open on 31 August and will close on 2 September for subscription. This will be the 15th IPO in India this year. Included in the IPO will be fresh shares amounting to INR425 crore in addition to an offer for sale (OFS) by existing investors Norwest Venture Partners and Xander Investment Holding for 32.35 lakh shares each. At the lower end of the price band, the IPO will raise INR457.3 crore while the upper end of the pricing spectrum will increase the IPO size to INR458.3 crore.
Norwest Venture Partners and Xander Investment Holding hold 3.23 crore shares or 10.41% each in the subsidiary of Sadbhav Engineering.
Interestingly, the IPO size has been reduced twice since filing the first draft red herring prospectus (DRHP). In the revised prospectus, the company said Norwest Venture Partners and Xander Investment Holding planned to offer 81.02 lakh and 48.53 lakh shares respectively, marking a reduction from the earlier plans of offloading 1.61 crore shares each. However, the latest RHP indicates the shares to be offered by Norwest and Xander have been further reduced.
Sadbhav Infrastructure builds and operates toll highways and roads in several states including Maharashtra, Gujarat, Rajasthan, Karnataka, Haryana, Madhya Pradesh and Telangana and border check posts in Maharashtra. The company operates in a capital intensive industry which has resulted in heavy debt on its books. Like most other infrastructure plays, Sadbhav Infrastructure’s objective behind the IPO is to repay some of its debt that is hampering its financial performance. Sadbhav Infrastructure’s consolidated revenues in FY 2015 jumped 34.5% to INR528 crore; however, losses doubled to INR301.5 crore from previous FY. The company plans to use INR264.8 crore towards debt repayment while another INR82 crore are earmarked for investment in its SUTPL (Shreenathji – Udaipur Tollway Private Limited) subsidiary. The strategy to raise public funds to pay back debt is unlikely to help Sadbhav Infrastructure’s financial in a big way as it has INR5,706.1 crore in long term borrowings as on 31 March 2015.
Going by the responses of the IPOs of PNC Infratech and MEP Infrastructure in the same space, the odds are stacked heavily against Sadbhav Infrastructure. Meanwhile, the extreme volatility in the secondary market, induced by the growth concerns in China, will play a spoilsport for new IPOs. This impact is already seen in the weak subscription of just 36% in Navkar Corporation IPO in two days.