The Initial Public Offering (IPO) market is heating up with newer companies coming up at regular intervals to ask the public for cash.
From subscription figures that follow IPOs, the investors’ response appears to be overwhelming. The voracious public appetite for fresh issues has put underwriters in a safe position, major market participants say. The IPOs had lined up for listing before the 2017 debacle after which the risky stakes in stocks went out of favour, forcing the corporates to put their plans of going public on hold.
In the absence of an alternative investment avenue, excess liquidity in the hands of investors has no way to go. Banks continue to offer paltry returns. Gold lately lost its lustre. The real estate market refuses to flourish as it is under the taxman’s gaze. The government is systematically driving away both the needy and the greedy from the National Savings Schemes (NSS). Their returns are not commensurate with inflation.
But if that was not enough to scare away the savers, the ominous switch from “nominated persons” to “legal heirs as required under the Muslim Law of Inheritance” for payment dues promises to work as investors drown in complexities. Since July, the government has banned institutional investment in NSS, leaving corporates with hefty sums in employee-related funds, some of which must find its way into equities.
The tyre-maker aims to raise at least Rs1.4bn at the floor price of Rs47 per share
Regardless of Covid-19, share prices across the globe and in the home market are going through the roof. The spectacular recovery of the KSE-100 index from 27,000 points in March to 41,000 points has made men with money sit up and look. The latest jump in quarterly corporate profits has also raised investors’ confidence. They are heading back to the risky yet high return–yielding stocks. But with all the money chasing just a dozen bluechips on the Pakistan Stock Exchange (PSX), the investors’ appetite for quality fresh offerings is insatiable.
In the first 11 months of 2020, three companies have entered the stock market: TPL Trakker Ltd, Organic Meat Company and Agha Steel Industries.
The latest to seek listing is Panther Tyres Ltd (formerly Mian Tyre and Rubber Company Ltd). The draft prospectus of the company was put up for public comments. Panther Tyres Ltd proposes to raise Rs1.41 billion (at the floor price) by issuing 40 million shares. It consists of 30m shares as new issue and 10m shares — 7.14 per cent of the total post-IPO paid-up capital — being offered by Mian Iftikhar Ahmad (sponsor) as an offer for sale. The entire issue will be offered through the book building method at a floor price of Rs47 per share (including the premium of Rs37) with a maximum price band of up to 40pc.
According to the draft prospectus, the bidders will be allowed to place bids for 100pc of the issue size and the strike price will be the price at which the 100pc issue will be subscribed. “The successful bidders will be provisionally allotted only 75pc of the issue or 30m shares while the remaining 25pc or 10m shares will be offered to retail investors (through an IPO).” The general public will be made the offer at the strike price and, in case the retail portion of the issue remains unsubscribed, it will be allotted to the successful bidders of book-building on a pro rata basis.
The eligible investor (in book-building) will be an individual and institutional investor whose bid amount is not less than Rs1m. A corporate watcher said the bar has been set low, which will allow a larger number of investors with shallow pockets to take part in the book-building process.
Panther Tyres Ltd, a family-owned business, was founded in 1983. The sponsors — Mian Iftikhar Ahmed, his spouse Samina Iftikhar and son Mian Faisal Iftikhar — hold 99.9pc shares in the company. Their stake will be diluted to 71.43pc post-IPO. The company’s manufacturing facilities are situated in Sheikhupura. Apart from the main business of tyres and tubes, the company is also said to have ventured into the trading business of automobile spare parts and lubricants. The company proposes to carry out plant expansion and modernisation, which include a spike in the tyre set production capacity by 21pc to 9.8m per annum from 8.1m per annum. The expansion cost of Rs3.07bn is proposed to be raised by a mixture of debt and equity in the ratio of 37.5:62.5.
Key competitors of the company are Service Industries, General Tyre and Rubber Company, Diamond Tyres, Ghauri Tyre and Tube, and Crown Tyres. Local companies are also in competition with international brands that are present in the market: Bridgestone, Dunlop, Michein, Yokohoma, Pirelli, MRF and CEAT. Apart from the locally produced and imported tyres, the grey market (illegally imported tyres) caters to around one-third of the total demand of tyres in the country.
In 2019-2020, the company’s net worth was Rs3.6bn. Its annual revenue was Rs11.6bn while profit after tax was Rs252m with earnings per share of Rs2.52. The prospectus says the company was the first tyre exporter of Pakistan and is currently making its footprint in a dozen countries, including Turkey, United Arab Emirates and Syria. Its major cost drivers are an increase in international rubber prices along with fuel and power.
Published in Dawn, The Business and Finance Weekly, November 30th, 2020