Capillary Tech IPO Debut: Muted Demand & Sky-High Valuation Leave Investors Guessing!

Author

Akshat Lakshkar | Whalesbook News Team

Detailed Coverage:

The Initial Public Offering (IPO) of Capillary Technologies India Ltd commenced its subscription period on Friday, November 14. However, early subscription figures revealed a subdued investor response. As of 11:32 AM, the IPO had achieved only 9% subscription against the total issue size, according to BSE data.

Subscription trends across various investor categories showed a slow start. The Qualified Institutional Buyers (QIB) segment reported 0% bids, while Non-Institutional Investors (NII) saw 26% subscription. Retail investors subscribed to 9% of their allocated portion, and employees' quota was at 28%.

Adding to the cautious sentiment, the grey market premium (GMP) was reported at Rs 0. This indicates a lack of immediate upside expectation for the stock on its listing day. A zero GMP is often seen as a signal of trader indecision, especially for technology sector offerings that command higher valuations.

Capillary Technologies has set its IPO price band between Rs 549 to Rs 577 per share. The total offering comprises a fresh issue of Rs 345 crore and an offer for sale of 92.3 lakh shares valued at Rs 532.5 crore. Prior to the public issue, the company successfully raised Rs 394 crore from anchor investors on Thursday.

The company operates in the AI-led SaaS and customer loyalty solutions sector, serving over 410 brands globally. It achieved profitability in FY25, reporting Rs 14.15 crore profit after two years of losses, with revenue climbing to Rs 598 crore in the same fiscal year.

Despite recent profitability, market analysts express reservations concerning the company's high valuation. Capillary's post-issue price to earnings (P/E) ratio is estimated to be between 171 to 180 times, considered very expensive even for Software as a Service (SaaS) companies. Experts also highlight risks such as concentration, intense competition from global players, and recent negative cash flows.

Given the weak opening-day subscription trend and the flat GMP, market observers suggest that listing gains for Capillary Technologies appear uncertain at this juncture. Investors primarily seeking short-term gains are advised to monitor bidding momentum closely over the final days of the offer, while risk-tolerant investors might consider applying based on future bidding trends.

Impact: This news has a moderate impact on the Indian stock market, specifically influencing investor sentiment towards upcoming IPOs in the technology sector and highlighting concerns about high valuations. The direct impact is on Capillary Technologies' potential listing performance. Rating: 6/10

Difficult Terms: IPO (Initial Public Offering): The process by which a private company can become a public company by selling shares to the public for the first time. Subscription: The process where investors place orders to buy shares during an IPO. BSE (Bombay Stock Exchange): One of the oldest stock exchanges in Asia. Qualified Institutional Buyers (QIB): Large institutional investors like mutual funds, foreign institutional investors, etc. Non-Institutional Investors (NII): Investors who apply for shares worth more than Rs 2 lakh in an IPO, typically high-net-worth individuals and corporates. Retail Investors: Individual investors who apply for shares worth up to Rs 2 lakh in an IPO. Grey Market Premium (GMP): The unofficial premium at which IPO shares are traded in the grey market before they are listed on stock exchanges. A GMP of Rs 0 indicates no premium. SaaS (Software as a Service): A software distribution model where a third-party provider hosts applications and makes them available to customers over the Internet. Customer Loyalty Solutions: Programs or services designed to retain existing customers and encourage repeat business. FY25 (Fiscal Year 2025): The financial year ending March 31, 2025. Offer for Sale (OFS): A provision where existing shareholders of a company sell their shares to the public during an IPO. Anchor Investors: Large institutional investors who subscribe to a portion of an IPO before it opens for public subscription, providing stability and price discovery. Price to Earnings (P/E) ratio: A valuation ratio that compares a company's current share price to its earnings per share. It's used to determine if a stock is overvalued or undervalued. Negative Cash Flows: A situation where a company's cash outflows exceed its cash inflows.