IPO frenzy: Why promoters are rushing to list their subsidiaries

The Indian IPO market, which experienced a mild slowdown early this year during the general election, picked up over the last quarter, demonstrating growing investor confidence in the country’s growth story. From Ola Electric and Bajaj Housing Finance to Bharti Hexacom, Firstcry and Digit Insurance, as many as 26 main board companies launched their IPOs in the July-September quarter of the current year compared with 14 issues in April-June quarter (during on-going election) and 22 in March quarter.

In the first half of the financial year 2024-25, a total of 40 main board IPOs raised ₹51,365 crore from public issues, which was 95% higher than the ₹26,311 crore mobilised by 31 companies in the same period in 2023-24, as per data compiled by primedatabase.com. Only 11 out of the 40 IPOs that hit the market had a prior private equity (PE) or venture capital (VC) investor who sold shares in the IPO. Offers for sale (OFS) by such PE/VC investors stood at ₹6,730 crore, accounting for 13% of the total IPO amount. The OFS by private promoters was at ₹12,201 crore, constituting another 24% of the IPO amount. On the other hand, primary share sales commanded the lion’s share, accounting for 49% of total issuances or ₹25,053 crore.

The Changing IPO Landscape

However, the IPO landscape changed because of Hyundai Motor India Limited’s record issue of ₹27,870 crore, which was entirely an offer for sale of 14.22 crore shares by South Korean parent, Hyundai Motor Group. Following HMIL’s public offering, the OFS component in the IPO activity in the calendar year 2024 surged to 63% or ₹57,513 crore (out of ₹91,294 crore raised by 64 main board IPOs till October 18, 2024). Under the OFS, promoters raised ₹41,721 crore by diluting their stake in the companies, while ₹8,277 crore was garnered by PE/VC.

As per capital market regulatory norms, a company can raise funds via an IPO either by issuing fresh shares, offer for sale by promoter or existing shareholders, or a combination of both. The exchange data shows that fresh issues comprised more than 50% of the total issue size between 1989 and 2013, except from two instances. However, the IPO market dynamics changed after 2013, with OFS part started dominating amid full or partial exits by shareholders or promoters.

According to industry experts, the shift in fundraising pattern in the IPO market can be attributed to factors such as strong liquidity, favorable regulatory environment, and robust performance of recent IPOs. There is also an increasing trend of promoters launching IPOs for their subsidiaries for debt reduction as well as value unlocking.

But, what is emboldening the promoters to list their subsidiaries in the stock market? The answer is lucrative exit at rich valuations, strong listing gains, and a growing investor appetite for traditional companies.

“The capital markets have shown strong liquidity in recent years, which is encouraging companies to tap into public markets to raise funds. Additionally, the favorable regulatory environment and the robust performance of recent IPOs have instilled confidence among promoters to bring their subsidiaries to the market,” says Santosh Meena, Head of Research, Swastika Investmart.

Average listing gain (based on closing price on listing date) in the first half of FY25 increased to 34.28%, in comparison to 28.65% in the first half of 2023-24, as per primedatabase.com. Of the 38 IPOs which have got listed thus far in H1 FY25, 30 gave a return of over 10%. Bajaj Housing Finance gave a stupendous return of 136% on listing day followed by Unicommerce Esolutions (94%) and Premier Energies (87%). 30 of the 38 IPOs are trading above the issue price (closing price of 30th September, 2024). The average gain of the 38 IPOs till 30th September 2024 has been a huge 41.80%.

“Another driver is the desire to unlock value. Subsidiaries often operate in niche sectors or newer business verticals that have the potential to grow independently. By listing them, promoters can highlight the true value of these businesses, which might not be fully recognised when they remain part of the parent company,” adds Meena.

Concurring with this, Pranjal Srivastava, Partner – Investment Banking, Centrum Capital, says that if the corporate is already listed then investors also have greater comfort on governance, accounting etc, which may have been demonstrated by the listed promoter.

Upcoming subsidiary IPOs

A wave of new IPOs is set to hit Dalal Street in the next few months, including some of the listed parent companies coming with the public issues of their subsidiaries. “High market valuations, favourable market conditions and a conducive regulatory climate make it an attractive time to go public, offering better returns for promoters and shareholders, says Bajaj Broking Research.

What has also helped the ecosystem is the lucrative exit for promoters, private equity and venture capital entities. “Public offerings allow business entities to allow their subsidiaries to branch out as independent entities. It enables the unlocking of true value, benefiting both the subsidiary and parent company,” the brokerage says in a note.

Fortune India has collated a list of all top parent companies which plan to list their subsidiaries in the near term. 

HDFC Bank   HDB Financial Services

India's top private lender HDFC Bank during its September quarter earnings report disclosed that it will sell equity shares worth ₹10,000 crore via an offer for sale in its NBFC subsidiary, HDB Financial Services Ltd. HDFC Bank holds a 94.6% stake in HDB Financial, which is looking to raise a total of ₹12,500 crore via IPO route, including a fresh issue of equities worth ₹2,500 crore. This will be the group’s first public issue in six years.

NTPC- NTPC Green Energy

State-owned NTPC, India’s largest power generation company, has taken a significant step to list its green energy arm, NTPC Green Energy, on the domestic bourses. In September this year, NTPC Green Energy filed an IPO paper with SEBI to raise ₹10,000 crore via IPO route. The offer is completely a fresh issue of equity shares, with no offer for sale component, which is likely to be the largest initial share sale by a public sector entity in India.

Tata Motors - Tata Passenger Electric Mobility

Auto major Tata Motors in March this year unveiled its plan to split the commercial vehicle (CV) and passenger vehicle (PV) businesses in two separate listed entities. Tata Passenger Electric Mobility Limited (TPEML), the electric vehicle arm of Tata Motors, is gearing up for a potential IPO in the next 12-18 months, aiming to raise $1-2 billion, which will help the promoter monetise its investments in the EV sector.

ONGC -ONGC Green Energy

Oil and Natural Gas Corporation (ONGC), the country’s largest crude oil and natural gas company, is also looking to list its renewable arm, ONGC Green Energy. While there have been no official announcements regarding an IPO, the PSU major may soon unveil plans to list its subsidiary, which focuses on renewable energy initiatives, including biofuels, green hydrogen and carbon capture. In March 2024, ONGC committed ₹99 crore to ONGC Green, while the board gave approval to invest an additional ₹1,100 crore in the company.

SJVN-SJVN Green Energy

Another PSU entity, Satluj Jal Vidyut Nigam Limited (SJVN) is also gearing up to list its subsidiary SJVN Green Energy Ltd (SGEL) to support its growth plans. SGEL, which has projects in Maharashtra and Assam, aims to develop 25,000 MW of renewable energy capacity by 2030.

Hero MotoCorp Hero FinCorp

Hero FinCorp, a non-banking financial arm of Hero MotoCorp, filed its draft red herring prospectus (DRHP) with the SEBI in August this year to raise ₹3,668 crore through an IPO. The IPO of CEO Abhimanyu Munjal-led NBFC is a mix of fresh equities worth ₹2,100 crore of face value of ₹10 each and an OFS of around ₹1,568 crore by existing shareholders and promoters. The IPO proceed is intended to augment its capital base for onward lending which are expected to arise out of the growth in the company’s business and assets.

JSW Group - JSW Cement

Sajjan Jindal-promoted JSW Cement  submitted its preliminary IPO documents to the SEBI on August 16, 2024, to raise ₹4,000 crore through listing of its shares on exchanges. The IPO, which comprises a fresh issue of equity shares of ₹2,000 crore and OFS component of another ₹2,000 crore, has been reportedly put on hold by the regulator amid undisclosed reasons.

Shapoorji Pallonji Group - Afcons Infrastructure

Shapoorji Pallonji group’s flagship Afcons Infrastructure Limited (AIL) has already received final observation from the SEBI to launch its public offer. The Mumbai-based infrastructure engineering and construction company had filed its IPO papers with the regulator on March 28, 2024, to raise ₹7,000 crore, which is a mix of fresh issue of shares of ₹1,250 crore and an offer for sale of up to ₹5,750 crore by Goswami Infratech Private Limited.

Canara Bank - Canara Robeco Asset Management

The IPO of Canara Robeco Asset Management Company (AMC) is expected to be launched in the fourth quarter of the current financial year, as per Canara Bank MD & CEO K Satyanarayana Raju. PSU lender Canara Bank, which owns a 51% stake in the mutual fund company, is mulling a stake sale of 13% equity via OFS route. In December last year, the board of Canara Bank gave in-principle approval to start the process of listing the mutual fund subsidiary by way of an initial share sale.

Apart from these confirmed names, reports suggest that big conglomerates such as Tata, Reliance and the Godrej Group intend to sell shares of their firms to the general public.

Billionaire Mukesh Ambani-led Reliance Industries may consider spinning off its telecom arm Jio for a public listing early next year. Global brokerage Jefferies in a recent report suggests that the high-profile listing of Reliance Jio could materialise in the first half of 2025, valuing the telecom arm at $112 billion.

Tata Sons, the holding company of the Tata Group, is back in limelight amid growing speculation over a possible IPO after late Ratan Tata's half-brother Noel Tata took over as the chairman of Tata Trusts. The speculation got rife amid the Reserve Bank of India’s (RBI) looming deadline of September 2025 for Tata Sons to get listed. It is mandatory for Tata Sons, which is mostly owned by Dorabji Tata Trust (28%) and the Ratan Tata Trust (24%), classified as an Upper Layer Non-banking Financial Company (NBFC), to list itself on the exchanges by September 25, 2025, unless it secures a reclassification. 

Besides, Godrej Capital, the financial services arm of Godrej Industries Group, is also eying to make its stock market debut in the next two to three years. Among other big players, Gautam Adani-led Adani Group is eying a public listing of its wholly owned subsidiary, Adani Airports Holdings Ltd, by the financial year 2027-28. If that happens, it'll be the seventh public listing of an Adani group company since its parent company Adani Enterprises Ltd was listed on the stock exchanges in 1994.