The total offer, which comprised 20 million shares and was open from February 21 to 24, was 27 times covered. Foreign institutional investors ordered 27.3 times the 12 million shares that were available to foreign and domestic institutions combined. Close to 95% of the book was said to have had no price sensitivity.
The two million share tranche offered to non-institutional investors was 43.7 times subscribed, while retail investors asked for 10.3 times the six million shares earmarked foor them.
ôIndia is hot and everybody is looking at it, " a banker familiar with the issue comments. "Most accounts put in bids for the maximum size allowed and many institutional investors put in multiple bids as they were allowed to order 8.6 million shares per fund they manage."
Allocations were completed on a pro-rata basis.
M&M Financial, which provides financing for utility vehicles, tractors and cars, offered 10 million new shares and 10 million old shares at a price range of Rps170-200 per share through joint lead managers ABN AMRO Rothschild and Kotak Mahindra.
Parent company Mahindra & Mahindra Ltd. provided 99.9% of the old shares, although five other shareholders also took the opportunity to cash out a small part of their holdings. The sale accounted for 23% of the post-issue capital and will see M&M LtdÆs stake drop to 67.7% from 89.8%.
The price will value the company at a historical P/E of 15.7 times, which compares with an industry average of 17.8 times. It will also trade at a price-to-book value of 3.5 times, which ranks it in the middle among its competitors, which trade at P/B ratios ranging from 1.7 times (Sundaram Finance) to 5.7 times (Shriram Transport Finance).
The company was said to have rejected suggestions from banks pitching for the deal to price the share issue at a higher valuation as it wanted to leave something on the table for investors after the shares start trading on March 17.
In January, the company sold $13.5 million worth of shares at Rs190 apiece to Copa Cabana, a wholly-owned subsidiary of private equity firm ChrysCapital, and according to bankers it did not think it fair to set the price much below or above that. CopaCabana will hold 3.7% of the company following the share issue.
This generosity from the company may also be designed to establish a good relationship with investors as the group is expected to spin off more units for separate listings in the not too distant future. Some of those may be slightly larger than M&M Financial, targeting up to $150 million, bankers say.
IPO proceeds will be used to strengthen the companyÆs Tier I capital base and provide funding for future loans. As of December 31, 2005, the companyÆs capital adequacy ratio stood at 14.3%, compared to the RBI requirement of 12% for non-banking financial companies.
ôThe listing will also enhance our brand name and provide liquidity to our existing shareholders and our employees who have been granted options,ö the company said.
Investors were attracted to the company partly because of its ties to the Mahindra Group, which is one of the most respected companies in India, but also because of the strong growth projected for the sector as the Indian economy continues to steam ahead and income levels improve.
CRISIL Research and Information Services estimates that sales of passenger cars and UVs will grow at a CAGR of 12% over the next five years, reaching annual domestic sales of about 1.87 million by 2009-10. It also expects the retail asset finance market to continue to grow, albeit at a lower rate than the annualised 35% rate experienced between 1998-99 and 2003-04.
Initially, M&M financial was set up as a financing company for its parent which manufactures and sells UVs, light commercial vehicles, three-wheelers and tractors, but has gradually been expanding its loans to non-M&M clients with a primary focus on the rural and semi-urban markets. In the three years to March 2005, it expanded its nationwide branch network from 255 branches from 195.
According to the IPO prospectus, the company plans to enter new lending segments such as personal loans and housing loans, either directly or through a subsidiary, following its recent expansion into insurance broking and the distribution of third party mutual funds.
At the end of December 2005, M&M Financial had loan assets of Rs36,628.7 million, which was up from 11,702.1 million as of March 31, 2003. In the nine months to December last year it posted a net profit of Rs610.7 million, compared with Rs822.7 million in the fiscal year to March 31, 2005.
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