The Hindu Business Line : Response to Maruti IPO stumps analysts

THE overwhelming response to Maruti Udyog Ltd's initial public offering (IPO) has foxed analysts, most of whom had said that the share had been overpriced.

"We never had any problems with the company. We had only said that the price at which the shares were being offered was too high. According to us, the correct valuation should have been in the region of about Rs 100-108 for the Rs 5 share. It remains to be seen who is willing to buy the Maruti stock at the Rs 120-122 price level," said an executive with a leading merchant banking firm that had refused to underwrite the IPO.

A senior Disinvestment Ministry official, however, said that the response reflected the true value of the company.

"The Japanese (Suzuki Motor Corporation) are not fools. Last year, when Suzuki had taken management control of Maruti through the rights issue, they had paid Rs 3,280 for a Rs 100 share. That works out to Rs 164 for a share of Rs 5 face value. So, the issue is clearly not overpriced and we have been vindicated," he said.

According to market sources, domestic financial institutions have largely stayed away from the book building process for Maruti.Foreign institutional investors (FIIs) are understood to have placed their bids for large chunks of the Government's 25 per cent equity in MUL on the block.

Meanwhile, the investment departments of domestic financial institutions went into a huddle today, brainstorming on their strategy, as the issue will remain open till June 19.

"We did not anticipate such a response to the IPO. We continue to believe that the issue is over-priced. We are closely monitoring the progress of the book building and will decide our response in the next couple of days," said an executive with a leading financial institution. The bulk of the bids had been received at Rs 120 per share against a reserve price of Rs 115 set by the Government.

The IPO has been underwritten by Suzuki at Rs 115 per share, which means that Suzuki will pick up the shares that the Government is not able to sell above that price.

Market analysts said that the bidding was likely to be sluggish on Monday and Tuesday, and then pick up on Wednesday to reach the peak on Thursday, which is the closing date for the IPO.

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