Tata Capital raised ₹15,512 crore and was subscribed about twice. LG Electronics India raised ₹11,607 crore and was subscribed 54 times. The difference was price, not popularity.
Two of India’s largest IPOs closed within a day of each other this week. Tata Capital, a lender carrying one of the country’s most trusted names, raised ₹15,512 crore and drew bids for about twice the shares on offer. LG Electronics India raised ₹11,607 crore and drew bids for roughly 54 times, worth more than ₹4 lakh crore. It is tempting to read that as investors loving LG and shrugging at Tata. That is not quite what happened.
Oversubscription is a price signal
Investors bid heavily for an IPO when they expect it to trade above the issue price on listing day. That expectation depends less on the company’s quality than on how the price compares with similar companies already listed. LG’s Korean parent, which sold part of its stake through an offer for sale, priced the shares at a price-to-earnings ratio well below listed appliance makers such as Havells and Voltas. Big institutions noticed. The qualified institutional buyer portion alone was subscribed well over a hundred times.
Tata Capital is a large non-bank lender, and the RBI requires the biggest such lenders to list on the stock market within three years of being classed as systemically important. That deadline meant Tata Capital had to come to market this year, and it priced its shares closer to what similar lenders trade at. Fair pricing leaves little listing-day upside, so bids were measured.
A heavily oversubscribed IPO usually means the seller left money on the table.
Who got the money
There is one more difference. Because LG’s issue was entirely an offer for sale, every rupee went to the Korean parent; LG India itself raised nothing. Tata Capital’s issue included fresh shares, so part of the money goes into the company to fund more lending. For a retail investor, the lesson is simple. A big subscription number tells you how cheap the shares looked to professionals. It does not tell you whether the business will grow, and it says nothing at all about the price five years from now.
Update, October 14: Tata Capital listed on October 13 about 1% above its issue price. LG Electronics India listed on October 14 at roughly a 50% premium, close to what its subscription numbers implied.
Sources: NSE and BSE subscription data; company red herring prospectuses.
- Tata Capital’s ₹15,512 crore IPO was subscribed about 1.95 times. LG’s ₹11,607 crore IPO about 54 times.
- LG’s issue was entirely an offer for sale by its Korean parent. No new money went to the company.
- LG was priced at a clear discount to listed rivals. Tata Capital was priced closer to fair value.
- Oversubscription measures how cheap an IPO looks, not how good the company is.
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