Plastene India Shelves IPO Citing Poor Market Conditions

Plastene India (PIL), which had tapped the primary equity markets with its initial public offering (IPO) on 9th May 2012 has decided to shelve its plans as the offer managed to accrue a mere 28 per cent subscription on the last day of its offer subscription period on May 15th, 2012. Despite the astonishingly long offer period, investors on D-Street completely shunned the offer owing to the company’s fragmented nature of business and the high valuation of its shares.

The offer received a total of only 26.46 lakh bids as against the total issue size of 92.55 lakh equity shares. While the QIB portion of the offer went completely unsubscribed, the retail portion got subscribed by a mere 0.05x and employees bid for 0.75x of their reserved portion. The non-institutional portion received the highest subscription at 1.76x.

While a statement issued by the lead managers said that the IPO was shelved owing to unfavorable market conditions, we at DSIJ believe that the unruly and whimsical pricing policy adopted by the company and its lead managers was the foremost reason for the markets giving this offer complete thumbs-down.

Apart from the poor business dynamics such as the highly fragmented nature of the packaging industry, the vulnerability of PIL’s profitability to fluctuations in crude prices and lack of any competitive advantage useful to create alpha for the shareholders, there are few other negatives that must have played a spoil sport to the IPO’s failure.

For instance, the lead manager and the promoters of the company deemed it fit to not even have a single road show for the media and analysts in Mumbai which is said to be the Financial Capital of India. It goes without saying that any issue planning to list on the premier stock exchanges of India like the BSE or the NSE, needs to have at least a road show in Mumbai.

As a reminder, we had DSIJ had clearly our readers and the investor community at large to give this IPO a complete miss.