IPO Boom Fuel Investment Bankers' Fortunes

So far this year, bankers have earned Rs 1,226 crore for handling 45 IPOs, which together mobilised Rs 48,363 crore.

Investment bankers (i-bankers) are raking in cash from the initial public offering (IPO) boom.

The fees collected so far this year for handling maiden share sales are set to exceed the total collected during the full calendar year of 2023.

So far this year, bankers have earned Rs 1,226 crore (Rs 12.26 billion) for handling 45 IPOs, which together mobilised Rs 48,363 crore.

In comparison, they collected Rs 1,308 crore (Rs 13.08 billion) in 2023 from 57 IPOs that mobilised Rs 49,436 crore (Rs 494.36 billion).

This year's tally has received a boost from the recently concluded IPOs of electric scooter maker Ola Electric Mobility and baby products retailer BrainBees Solutions (FirstCry).

SoftBank-backed Ola's Rs 6,146 crore (Rs 61.46 billion) IPO is the top fee generator of the year, paying Rs 145 crore (Rs 1.45 billion), while FirstCry is the second-largest fee generator, paying Rs 96 crore (Rs 960 million) to bankers for handling its Rs 4,194 crore (Rs 41.94 billion) share sale.

Both IPOs were managed by about half a dozen bankers. The fee pool is divided among bankers, but the breakdown of fees paid to individual firms isn't disclosed.

Bankers attributed the improvement in fees to larger-sized offerings and a higher percentage of fees in some issues.

Other issues that earned bankers above Rs 50 crore (Rs 500 million) in fees this year include Go Digit General Insurance, which earned bankers Rs 70.2 crore (Rs 702 million); Aadhar Housing Finance (Rs 56.3 crore/Rs 563 million); Akums Drugs and Pharmaceuticals (Rs 56 crore/Rs 560 million); and Emcure Pharmaceuticals (Rs 51.2 crore/Rs 512 million).

The average fee received for IPOs by i-bankers is 2.53 per cent, compared to 2.65 per cent last year. The percentage fee is down because smaller deals typically charge higher fees in percentage terms.

"Bankers are flooded with work. They also have to use their resources judiciously. One has to pick and choose. Activity is abundant in both IPOs and other primary market deals," said Deepak Kaushik, group head of equity capital markets at SBI Capital Markets..

"Many of the new-age companies that are coming up with issues pay you decently," added Kaushik

And it's not the large issues driving up the fee pool. Bankers said that although the quantum of fees looks bigger in more major issues, even some smaller transactions are attractive if one considers the fee as a percentage of the issue size.

Saraswati Saree Depot, which raised Rs 152 crore (Rs 1.52 billion) through its IPO, paid 8 per cent of its issue size as a fee to its bankers.

Bankers earned over a 5 per cent fee in half a dozen IPOs, which all raised less than Rs 500 crorem (Rs 5 billion).

Except for Akums Drugs, all IPOs over Rs 1,000 crore (Rs 10 billion) have paid less than 3 per cent of the fee to bankers.

"Bankers strive to get a certain minimum of fees. If the issue size is small, the percentage fee will be higher. Smaller issues require more work," said Pranjal Srivastava, partner (investment banking) at Centrum Capital.

"You can afford to charge lower fees if it is a bigger issue. The total amount you earn will be far higher. You can expect to make a 4 per cent fee normally in up to a Rs 500 crore IPO," Srivastava added.

Given the issue pipeline for the remainder of the year, bankers are looking at a rewarding year. However, it seems unlikely that the fee pool will surpass that of 2021, which was a record year.

"With the transactions still left, investment banks should be making three times what they made last year. Currently, the total fee pool will cross the previous year's tally. A lot of transactions are in the pipeline," said Kaushik.

Some of the large issues waiting to hit the market are the Indian arm of South Korean automotive giant Hyundai, food delivery major Swiggy, financing solutions provider Hero FinCorp, and green cement manufacturer JSW Cement.

All these companies are currently awaiting Sebi approval for their IPOs.

Feature Presentation: Ashish Narsale/Rediff.com