Pricing an initial public offering (IPO) is considered an art, for no small reason. One needs to look no further than the Indian Railway Catering and Tourism Corporation (IRCTC) IPO, which closed on Thursday, to understand why.
The numbers always tell a story. While the government had targeted a mop-up of ₹645 crore, IRCTC’s IPO saw bids amounting to a whopping ₹72,000 crore!
For a government that is desperately trying to shore up its revenues at a time when it has announced a reduction in the corporate tax rate and coping with falling Goods and Sevices Tax (GST) collections, this definitely is an opportunity missed.
Clearly, the Centre and its merchant bankers erred in conservatively pricing the issue.
Had they been more aggressive, the disinvestment receipts from the IRCTC offer for-sale would have been far higher. And that tells us why pricing an IPO is an art.
IRCTC is in a sweet spot as it is not only an e-commerce player but also enjoys a monopoly over the business of booking railway tickets online.
It has a monopoly over the catering of food served on trains.
It is exclusively authorized to manufacture and supply packaged drinking water at stations/trains.
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