Why has the Mankind Pharma IPO GMP been so volatile?

Mankind Pharma IPO worth Rs. 4,326.36 crore is entirely being done by way of an offer for sale of the said amount. There is no fresh issue component in this IPO. The offer for sale (OFS) component is by the promoters and early shareholders of the company. Here it must be noted that while the fresh issue component infuses fresh funds into the company, it also is EPS dilutive and equity dilutive. On the other hand, the OFS or the offer for sale is just a transfer of ownership so there is no fresh infusion of funds. However, it also does not dilute the equity. The IPO of Mankind Pharma is priced in the band of Rs.1,026 to Rs.1,080 per share and the IPO allotment price will be discovered post the book building process. At the upper end of the price band of Rs1,080, the size of the issue of 4,00,58,844 shares would be worth Rs4,326.36 crore. That is the overall size of the issue.

Who are the selling shareholders in Mankind Pharma?

The selling shareholders in the OFS of Mankind Pharma would be the promoter group as well as some of the early private equity and other institutional investors as under.

The issue of Mankind Pharma opened for subscription on 25th April 2023 and closed for subscription on 27th April 2023 (both days inclusive). The basis of allotment will be finalized on 03rd May 2023 and the refunds will be initiated on 04th May 2023. In addition, the demat credits are expected to happen on 05th May 2023 and the stock is scheduled to list on 08th May 2023 on the NSE and the BSE.

Volatility in the GMP of Mankind Pharma

One thing that stood about the IPO of Mankind Pharma is the sharp volatility in the GMP of the stock since it started trading in the grey market about 12 days back. Volatility in GMP is quite normal but in this case, the volatility has been tad too high. Let us first look at the nature of the volatility and then look at the possible reasons.

As can be seen from the above table, the GMP of Mankind Pharma has oscillated between a high of Rs95 to a low of Rs28 in a span of just a few days. Also, in percentage terms, the GMP has oscillated from a high of 8.88% to a low of 2.59%. What were the triggers for this acute volatility in the GMP?

Triggers for the volatility in the GMP of Mankind Pharma

There were several triggers for the volatility in the GMP of Mankind Pharma. Some of them can be summarized as under.

• The issue size is Rs4,326 crore and it is the largest issue in almost a year since the Delhivery IPO. Hence markets have been extremely sceptical about whether the IPO would actually be successfully subscribed or not.
   

• The initial response was quite tepid and that also kept the IPO pricing on tenterhooks. While the anchor portion had been well subscribed, the retail and HNI were still uncertain and that also led to the volatility in the price of the IPO.
   

• Valuations of the IPO were at the upper end of the valuation spectrum and generally markets have been wary of issues where there is not much left on the table for investors. That is one of the reasons, there was quite a bit of doubt over the GMP.
   

• The market cap of the company at the indicative valuations is at Rs43,264 crore and that had raised apprehensions that the upside may be limited, especially considering that it is a predominantly domestic business. P/E ratio of the stock is above 32X.
   

• Generally, investors have been wary of pure OFS as it involves dilution of stake by early stakeholders. That could be one of the reasons why the GMP has fallen sharply after starting out at a fairly impressive level.
  
   

Eventually, one has to wait for the final numbers, but there is a lot of apprehension in the market of such a large IPO where the valuations are close to the upper end of the industry spectrum.