Qualified Institutional Placements (QIP) is a capital raising tool whereby a listed firm can issue equity shares, fully and partly convertible debentures, or other securities that are convertible to equity shares to institutional investors.
Indian companies have mopped-up close to Rs.170 billion through institutional placement in the first four months of the FY 2014-15 primarily to support working capital needs. The figure is higher than Rs.136 billion that was raised through the QIP route in the entire FY 2013-14.
Many more firms have lined-up plans to raise capital through QIP in the current fiscal. According to the latest information available with the stock exchanges, companies have raised Rs.168 billion from 14 QIP issues during the April-July period.
This includes Rs.97 billion raised through 8 QIPs in July, and Rs.63 billion garnered via three issues in June. Firms had mopped-up Rs.8 billion in May 2014.
Most of the firms have raked in funds to meet working capital requirements and expansion plans. Most of the funds raising through QIP route have taken place after the General election verdict was announced in mid-May, indicating the revival of investor sentiment backed by a strong secondary market.
The list of QIP issues in the current FY 2014-15 are as follows-
- Jyoti Structures Ltd.
- IDFC Ltd.
- Infoedge India Ltd.
- Gammon Infrastructure Projects Ltd.
- ITD Cementation India Ltd.
- Prestige Estates Project Ltd.
- J.Kumar Infraprojects Limited
- CITY UNION BANK LIMITED
- Jaiprakash Associates Limited
- GMR Infrastructure Limited
- ABAN OFFSHORE LIMITED
- ASHOK LEYLAND LTD
- Reliance Communications Limited
- IDEA CELLULAR LIMITED
- KSK Energy Ventures Limited
- Yes Bank Ltd
- SKS Microfinance Limited
- Muthoot Finance Ltd
QIP issue dilutes the earnings per share as the company issues shares for additional capital to the existing capital base. The company uses the capital in a manner that can later accelerate the growth in the earnings and profitability only to benefit the shareholders in the time to come.
Many of the companies have given negative returns since their QIP issue. Companies with large amount of debt such as Reliance Communication, Aban Offshore, GMR Infrastructure, Jaiprakash Associates Ltd., Gammon Infrastructure Projects, KSK Energy Ventures and Prestige Estates Project have seen severe erosion in their stock prices.
Yes Bank stock has remained more or less flat after the QIP issue and City Union Bank has given decent returns on a month on month basis and after its QIP.
The stocks that stand out of the lot viz. Infoedge India, Muthoot Finance and Ashok Leyland have not seen any correction in their stock price but in fact have gained value over and above the QIP price. Infoedge has higher than average industry growth rate and is the only listed player with a unique business model and Ashok Leyland is expected to get traction due to likely recovery in the Commercial Vehicle segment of the Automobile Industry.
Stocks in the Infrastructure space are companies with heavy debt and as such do not see an acceleration in the earnings at a rapid pace. Even though stock prices in the infra space rose due to stable Government at the Centre the market has rerated the stocks that have infused capital, as the time required to utilise the proceeds from the QIP issue is expected to yield returns after a long period of time.
The high growth stocks with higher than industry and overall growth rates have taken the QIP stocks either to marginally higher levels or have remained flat in the worst case scenario.
The market seems to be very clear in its preference for high growth stocks in the current market scenario.