Azad Engineering IPO Anchor Allocation at 29.84%

About Azad Engineering IPO

Azad Engineering IPO has a face value of ₹2 per share and the price band for the book building IPO has been set in the range of ₹499 to ₹524 per share, with final price to be discovered within this band. Azad Engineering IPO will be a combination of a fresh issue and an offer for sale (OFS). The fresh issue portion comprises the issue of 45,80,153 shares (45.80 lakh shares approximately), which at the upper price band of ₹524 per share will translate into a fresh issue size of ₹240.00 crore. The offer for sale portion of the IPO of Azad Engineering Ltd comprises the sale of 95,41,985 shares (95.42 lakh shares approximately), which at the upper price band of ₹524 per share will translate into a total OFS size of ₹500.00 crore. Therefore, the overall IPO of Azad Engineering Ltd will comprise of the issue and sale of 1,41,22,138 shares (141.22 lakh shares approximately), which at the upper price band of ₹524 per share translates into total IPO size of ₹740 crore. The IPO will be lead managed by Axis Capital, ICICI Securities, SBI Capital Markets and Anand Rathi Securities. KFIN Technologies Ltd will be the registrar to the issue.

A brief on the anchor allocation of Azad Engineering IPO

The anchor issue of Azad Engineering Ltd saw a relatively strong response on 19th December 2023 with 29.84% of the IPO size getting absorbed by the anchors. Out of 1,41,22,138 shares (141.22 lakh shares approximately) on offer, the anchors picked up 42,13,731 shares (42.14 lakh shares approximately) accounting for 29.84% of the total IPO size. The anchor placement reporting was made to the BSE late on Tuesday, December 19th, 2023; one working day ahead of the IPO opening on Wednesday, 20th December 2023. The IPO of Azad Engineering Ltd opens on 20th December 2023 in the price band of ₹499 to ₹524 and will close for subscription on 22nd December 2023.

The entire anchor allocation was made at the upper price band of ₹524 per share. This includes the face value of ₹2 per share plus a premium of ₹522 per share, taking the anchor allocation price to ₹524 per share. Let us focus on the anchor allotment portion ahead of the Azad Engineering Ltd IPO, which saw the anchor bidding opening and also closing on 19th December 2023. Post the anchor allocation, here is how the overall allocation looked.

Here it must be noted that the 42,13,731 shares issued to the anchor investors on 19th December 2023, were actually reduced from the original QIB quota; and only the residual amount would be available to QIBs in the IPO. That change has been reflected in the table above, with the QIB IPO portion reduced to the extent of the anchor allocation. The overall allocation to QIBs includes the anchor portion, so the anchor shares allotted has been deducted from the QIB quota for the purpose of the public issue.

Finer points of anchor allocation process

Before we go into the details of the actual anchor allotment, a quick word on the process of anchor placement. The anchor placement ahead of an IPO/FPO is different from a pre-IPO placement in that the anchor allocation has a lock-in period of just one month, although under the new rules, part of the anchor portion will be locked in for 3 months. It is just to give confidence to investors that the issue is backed by large established institutions. It is the presence of institutional investors like mutual funds and foreign portfolio investors (FPIs) that gives confidence to the retail investors. Here are details of the anchor lock-in for the issue of Azad Engineering Ltd.

However, the anchor investors cannot be allotted shares at a discount to the IPO price. This is explicitly stated in the SEBI revised regulations as under, “As per the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirement) Regulations, 2018, as amended, in case the Offer Price discovered through book building process is higher than the Anchor Investor Allocation Price, then the Anchor investors will be required to pay the difference by the pay-in as specified in the revised CAN.

An anchor investor in an IPO is normally a qualified institutional buyer (QIB) like a foreign portfolio investor or mutual fund or insurance company or a sovereign fund which invests before the IPO is made available to the public as per SEBI regulations. Anchor portion is part of the public issue, so the IPO portion to the public (QIB portion) is reduced to that extent. As initial investors, these anchors make the IPO process more attractive for investors, and instil confidence in them. Anchor investors also largely aid in price discovery of the IPO

Anchor allocation investors in Azad Engineering Ltd

On 19th December 2023, Azad Engineering Ltd completed the bidding for its anchor allocation. There was a strong and robust response as the anchor investors participated through the process of book building. A total of 42,13,731 shares were allotted to a total of 20 anchor investors. The allocation was done at the upper IPO price band of ₹524 per share (including premium of ₹522 per share) which resulted in an overall anchor allocation of ₹220.80 crore. The anchors have already absorbed 29.84% of the total issue size of ₹740 crore, which is indicative of fairly robust institutional demand.

Listed below are the 17 anchor investors who, have been allotted shares in the anchor allocation done ahead of the IPO of Azad Engineering Ltd of more than 3% each. The entire anchor allocation of ₹220.80 crore was spread across a total of 20 major anchor investors, with 17 anchor investors getting more than 3% each out of the anchor allocation quota. While there were 20 anchor investors in all, only 17 anchor investors who got allocated 3% or more each of the anchor quota are listed in the table below. These 17 anchor investors accounted for 99.06% of the total anchor collection of  ₹220.80 crore. The detailed allocation is captured in the table below, indexed descending on size of anchor allocation.

Data Source: BSE Filings (Value Allocated in ₹ in Crore)

The above list only includes the set of 17 anchor investors who got allotted shares of 3% or above each of the anchor portion done ahead of the Azad Engineering Ltd IPO. However, there were 20 anchor investor in all. The detailed and comprehensive report on the anchor allocation with the mutual fund portion separated can be accessed by clicking on the link below.

https://www.bseindia.com/markets/MarketInfo/DownloadAttach.aspx?id=20231219-55&attachedId=5af91c08-c3fd-4aeb-afb3-74c59f0c03ac

The detailed report is available in PDF format and can be downloaded by clicking on the link above. Alternatively, readers can also opt to cut this link and paste in their browser, in case the link is not directly clickable. The details of the anchor allocation can also be accessed in the Notices section of the BSE on its website www.bseindia.com.

Overall, the anchors absorbed 29.84% of the total issue size. The QIB portion in the IPO will be reduced to the extent of the anchor placement done above. Only the balance amount will be available for QIB allocation as part of the regular IPO. The general norm is that, in anchor placements, smaller issues find it hard to get FPIs interested while larger issues do not interest mutual funds. Azad Engineering Ltd saw a good deal of buying interest from all category of anchors viz. FPIs, participatory notes routed through ODIs, domestic mutual funds, AIFs, and insurance companies. Let us finally look at the sub-category of mutual fund participation in the anchor allocation ahead of the Azad Engineering Ltd IPO.

The anchor response normally sets the tone for the retail participation in the IPO and the anchor response has been fairly steady this time around. Out of the 42,13,731 shares allocated to the anchors in the IPO, a total of 19,10,056 shares were allocated to domestic mutual funds registered with SEBI. This allocation was spread across 10 mutual fund schemes belonging to 6 mutual fund asset management companies (AMCs). The mutual fund allocation in the anchor portion amounted to 45.33% of the total anchor size.