Companies tap the capital market for various reasons like funding expansion plans, monetisation of private equity investments or for wealth creation. We look at what some entrepreneurs from our ecosystem have to say about taking their companies public…
My first exposure to stock market investment was during my student days, in 1993, when I saw my father fill out a form, which he was reading through a magnifying lens! He told me then that it was an initial public offering (IPO) from a company called Infosys Technologies. I didn’t understand much about the concept of an IPO then, as my exposure to businesses and markets was practically nil, but I remember him telling me that this is one good stock to hold in your portfolio. When I had an opportunity to apply for the TCS (which was another stock recommended by him) IPO in the year 2004 and I got allotted some stocks, I was thrilled about the fact that I actually owned a part (so what if its minuscule!) of the company. Later on, when I started seeing the returns, the money power added to my euphoria. It is another fact that I subsequently started investing in the secondary market more actively. But this story is not about me, as an investor, who added stocks to diversify my investment portfolio. It is about the companies from our ecosystem that tapped the capital markets to seek funds, making themselves a public limited company.
Companies usually come out with a public issue when they have to raise capital for expansion purposes, monetise the investments of private equity investors, create wealth and so on.
For Rana Kapoor, founder, managing director and CEO of YES Bank, it was a bold decision, when his bank decided to come out with a public issue nine months from the time of its inception. The bank came out with an IPO of 70 million shares in July 2005 raising Rs. 315 crore of capital at a price of Rs. 45 per share. In a cover story we did on YES Bank last year, he spoke about the IPO as one of the things he did right during the initial stages of setting up the bank. The idea was to launch the bank and, according to Kapoor, making it a public limited company was the best way to do it. He wanted to build the best internal and external confidence, implement the highest levels of governance, transparency and accountability. And an IPO does all of this. It launches a bank, gets governance, builds the report card, shows its people that there is some wealth that is being created due to hard work in the inception stages and there is a trajectory to all of this.
Similarly, for, Rajesh Ghonasgi, the Chief Financial Officer of Persistent Systems and the man who spearheaded the IPO process for the company, it was an outstanding moment in his career. Ghonasgi’s focus was on defining the objective for raising money and explaining about the company to the market. The company had to be listed for strategic reasons. It had employees owning a substantial part of its stocks and also private equity investors who had invested in the company. “Our main aim was to make sure that the value we had created is visible to all the stakeholders through an external mechanism,” said Ghonasgi, in an interview with us. In March 2010, Persistent issued 5.4 million shares to the public and the funds it raised were used for building capacity. Its requirement was to increase the people capacity and sustain organic growth on a substantial scale. The company also needed funds for acquisition of assets and brand building, which is an ongoing activity.
One another note, when I spoke to my cousin recently, after a long gap, she was very excited about the fact that the company she works for came out with a public issue about a year and half back. She works for an education company and when it went public, as one of its oldest employees, she got stock options. While her gain so far is notional, her thrill of having made the right decision in working for the company was real.
So when does a company know if it is IPO-ready? A very important parameter is the financial performance. Like, Kiran Mazumdar-Shaw, the founder, chairman and managing director of Biocon, said in a comment about the IPO plans for Biocon’s subsidiaries Syngene International (a contract research organisation) and Clinigene International (a clinical research organisation), if a company can show sustained growth for eight quarters, then it is ready to look at an IPO. There is also the requirement to report quarterly performance and to be transparent and accountable to its investors. And as for me, yes, I’d watch out for some companies from the entrepreneurial ecosystem that are ready to IPO as I am excited about a few stories. Until then, happy IPO-ing!