Caught up in market turmoil, the two corporate IPOs last year – Roshan Packages and Ittefaq Iron Industries – didn’t live up to the hype. Will the first IPO of 2018 have a different fate?
After a three-month delay on account of fulfilling certain regulatory requirements, AGP Limited (AGPL) concluded its book-building last Thursday. The local pharma has been looking to offload 35 million shares (12.5% of its paid-up capital) as two of its existing investors – OBS Pakistan (the sponsor and majority shareholder) and Muller & Phipps (an associate) – divest part of their shareholding at floor price of Rs80 per share. (For some background, read “AGPL IPO: A liquidity event,” published November 2, 2017).
It’s arguably a better time to go public than the gloomy period that was 2HCY17. The AGPL book-runners intimated the PSX last Friday that the book-building was concluded at a strike price of Rs80 per share. The offer was subscribed 1.6 times, as 238 institutional investors and HNWIs successfully bid for 55.956 million shares. They will be allotted 75 percent of the 35 million shares on sale, as the remaining chunk will be put on sale to the general public later this week (Feb. 15 and Feb. 16) at the strike price.
AGPL book-building results are in sharp contrast to those achieved by Roshan Packages in January 2017 and Ittefaq Iron Industries in May 2017. Roshan shares were subscribed 3.3 times as strike price (Rs86.5) settled 146 percent above the base price. Ittefaq shares were subscribed 2.5 times and the strike price (Rs30.2) jumped 152 percent over the base price.
So, in contrast, the market embrace for AGPL looks anything but overwhelming. Oversubscription was modest, and strike price ended the same as floor price.
Part of 2017-IPO-excitement could be explained by an upbeat market sentiment in 1HCY17, in the run-up to Pakistan’s re-entry into the MSCI EM index. (AGPL has entered the market in a very different era). Also note that the floor prices set by both firms translated into significant P/E discounts over sector averages. Roshan offered 47 percent discount over sector P/E; Ittefaq P/E had a 35 percent discount. (AGPL P/E of 18.14 is also at a discount to pharma sector multiple, but not that much at latest prices and earnings).
Then, there could be other issues, too. Having burned their hands with Roshan and Ittefaq before – Roshan has lost about half of its value since it got listed; Ittefaq about 20 percent – investors could be wary of new kids on the block. That the AGPL IPO isn’t about funding growth projects – it’s about some early shareholders looking for an exit – also doesn’t help. Then, some investors might like to invest in already-listed stocks, some of whom have attractive P/E multiples following the shellacking in 2017.
But having locked in a decent price, it appears that AGPL may avoid the kind of volatility that befell the newbie’s in 2017. For one, the worst may be over for the market. Secondly, at Rs80, the stock has a limited room to rise before it reaches the sector P/E. And third, for a company having potential in the growing pharmaceutical sector, AGPL is the least expensive pharma stock to hold on to in the long run.
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