IPO Pipeline Reveals Concentration Among Leading Investment Banks

The future IPO pipeline indicates a pattern in terms of mandates, where 146 companies cleared by the Securities and Exchange Board of India plan to make their initial public offerings.

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Data from the PRIME Database indicates that nearly 30% of these companies have appointed JM Financial as a banker. Meanwhile, Motilal Oswal Investment Advisors is associated with 36 issues, and IIFL Capital Services appears in 42 mandates.

Multiple Bankers Per Issue Increases Competition

As indicated by the data, the trend in the current market is that IPOs have more than one banker, where companies appoint between two and three bankers per issue. For example, in some instances, like IPOs of Hero Fincorp and Hella Infra Market, eight bankers were appointed.

PRIME Database also indicates that there are more active investment bankers in the past three to four years compared to before, thereby increasing competition in the sector. This trend may be attributed to new entrants and companies moving their operations from SMEs to the mainboard.

Single-Banker IPOs Also Emerge

Of all the 146 companies planning an IPO, 41 of them prefer going with only one investment bank for their mandate. This sort of mandate is often carried out by small and medium-sized banks and mostly involves smaller issue sizes.

Companies selecting a sole banker usually follow a simple execution strategy, whereby a single bank will undertake the whole IPO exercise from pricing, book building, and allocation.

Role of Domestic and Foreign Banks

It can also be observed from the data that foreign investment banks often participate as members of a syndicate rather than being sole bankers. The major responsibility of these banks is international distribution.

The role of domestic banks, on the other hand, revolves around the management of key aspects of the IPO exercise. No IPO with a single banker in the current pipeline has appointed a foreign bank as the sole lead manager.

Fee Structure Remains Unchanged

According to the PRIME Database, the total fee paid by issuers is usually calculated as a percentage of the issue size. The number of bankers does not increase the overall fee pool but instead leads to the distribution of fees among participating firms.

As more companies get ready for IPOs, the trends in mandate allocation show that established players are becoming more concentrated while smaller banks are becoming more involved. This shows how things are changing in India's primary market ecosystem.