Pre-IPO Investments Jumps to Over Rs 1,300 Crore: Which Stocks Reaped the Greatest Rewards?

The excitement surrounding IPOs is palpable, but there’s a lesser-known facet that’s gaining traction in financial circles: Pre-IPO placement. Ever wondered how much capital companies manage to gather through this route? Well, in FY24, the numbers are staggering!

What is Pre-IPO Placement?

So, what exactly is Pre-IPO Placement? It’s essentially a private offering of shares to institutional or select investors before a company goes public with its IPO. This allows companies to secure capital from a chosen group of investors before opening up to the wider market.

In the fiscal year FY24, companies stepping into the stock market raised over Rs 1,300 crore through pre-IPO placements, marking a three-fold increase compared to FY23. This figure represents 1.93% of the total funds raised through IPOs in FY24, showcasing the significant role pre-IPO placements played in capital mobilization.

Beneficiaries of Pre-IPO Placements in FY24

Looking back, the previous record for such placements was in FY21 when companies amassed Rs 931 crore, accounting for 2.95% of the total IPO funds raised that year. Notable beneficiaries of pre-IPO placements in FY24 include Rashi Peripherals, SBFC Finance, Jupiter Life Line Hospitals, and Yatharth Hospital & Trauma Care Services.

Why Do Companies Opt for Pre-IPO Placements?

Why do companies opt for pre-IPO placements? It’s a strategic move to establish a pricing benchmark for their IPOs and attract marquee investors. For investors, it offers a guaranteed allocation at a set price, unlike the uncertainty that may accompany investing through the anchor or qualified institutional buyer book.

Especially for smaller IPOs, securing marquee investors adds credibility to the offering. Given the dominance of mid and small-cap companies in the IPO landscape last year, pre-IPO placements emerged as a valuable tool. However, the decision to pursue pre-IPO placements rests with the company, often in consultation with investment bankers, targeting wealthy investors and family offices.

Changes in IPO allotment rules implemented by the market regulator from April 1, 2022, also impacted wealthy investors. Now, one-third of shares under the NII category are allotted to HNIs with application sizes ranging from Rs 2-10 lakh, with the remainder reserved for applications exceeding Rs 10 lakh, allocated through a draw of lots.

It’s worth noting that pre-IPO investors are obligated to hold their shares for six months post-IPO, while anchor investors face a 30-day lock-in period before being able to sell half their holdings, with the remaining unlocked after 90 days.

In conclusion, the surge in pre-IPO placements underscores the evolving dynamics of capital mobilization in the IPO market. It’s not just about the public debut but also about strategically positioning the offering to secure early investments and pave the way for a successful IPO journey.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.