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State-run Ircon starts IPO as Modi government seeks to step up divestments

As much as 24% of shares on offer were subscribed on day one

MUMBAI (NewsRise) -- State-owned Ircon International's 4.67 billion-rupees ($64 million) initial public offering kicked off on Monday, marking New Delhi's sustained pace of divestment of railway firms after the resounding success of peer RITES's share sale in June.

The IPO of Ircon, in which the government is selling a 10.5% stake, or 9.9 million shares, was subscribed 24% on the first day of the offering, according to provisional data on the National Stock Exchange.

The engineering and construction company's IPO comes close on the heels of the smart debut of its state-run peer RITES in June, which gained about 15% over its IPO price. The 4.60 billion rupees IPO of RITES also saw demand outstripping supply by more than 67 times.

India's IPO market has been buoyant over the past few years, with funds raised from the listings hitting a record high of $11 billion in 2017 amid strong investor appetite for assets in Asia's third-largest economy. The momentum continued into the beginning of the year as foreign investors poured billions of dollars into India's stocks and bonds amid expectations of more economic reforms from Prime Minister Narendra Modi's government.

India had the highest number of initial public offerings across the world in the first half of the year, with companies raising as much as $3.9 billion, according to E&Y.

Sensing the optimism in India's capital market, the government has set a target of raising as much as 800 billion rupees through share sales this fiscal year. The move is also aimed at bridging the yawning gap between the country's revenue and expenses.

However, a slide in the Indian rupee against the U.S. dollar to record lows has pulled down the benchmark Sensex 2.7% since the beginning of September, casting a shadow over primary markets. The rupee has lost as much as 14% this year, becoming the worst-performing Asian currency.

The share sale of Ircon, priced between 470 rupees and 475 rupees a piece, received bids for about 2.4 million shares, or 24% of the 9.9 million shares offered, on the first day, the NSE data showed.

There were no takers for the portion set aside for qualified institutional buyers. The non-institutional investors' part was subscribed barely 1%, while the retail portion was subscribed 25%, the data showed.

Still, analysts remain confident of Ircon receiving a robust welcome from investors, citing the company's strong track record. It is the only state-run firm carrying out engineering procurement and construction projects in railways and faces no competition for the projects it bags from the railway ministry.

The company's revenue growth in the fiscal year 2016 through 2018 stood at 29%. It also has one of the highest order book-to-sales ratios across all engineering companies, and possesses a healthy balance sheet that can support further growth, said brokerage Nirmal Bang.

"Based on the business capabilities, industry growth prospects and valuations, we believe Ircon is attractively priced and recommend subscribing to the issue," it said.

--Dhanya Ann Thoppil

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