Ideal Level of Remuneration of Promoters, QIP Pricing (Q&A)

Modified: 29-Jun-20

The current article in this series provides responses related to the queries related to Qualified Institutional Placements (QIP):

  • How do companies determine QIP pricing and does it impact the company’s growth

 

 

QIP: How do companies determine QIP pricing and does it impact the company’s growth 

Hi Vijay,

Thank you for your support. I have a couple of questions on investment technical. It would be helpful if you could throw some light on this.

1) Impact of QIP on stock price: Most of the time we have seen that a company’s stock price does not move at normal pace post their QIP issue. You will find almost all the companies (except two companies) struggled once they complete the QIP (recent ex – L&T Finance). I just want to know what exact reason triggers a company to go for QIP. Why usually the QIP price is in some lower band even if the market and the company both are doing well? In addition, what is the rationale, which actually slows down the company’s growth post QIP period?

I did a research on this but most of the research covers the examples but not on the rationale, (although I know the market is irrational :-)). So just, want to check the reason behind it that helps in future to select a stock properly.

2) Also another question: How do you view promoter’s pledge? What are the points we need to check to assess whether promoter’s pledge is indeed good for the company?

Thanks in advance.

Regards,

Author’s Response:

Hi,

Thanks for writing to us! We are happy to see that you are doing your own equity analysis and spending time and effort to understand different concepts.

Regarding QIP:

Qualified Institutional Placement (QIP) is a method of raising additional equity by the company. All the factors, which necessitate additional equity infusion by company shareholders like reducing the debt to equity ratio, repay existing lenders, capitalize on current high share price etc. will impact companies’ decision to go for QIP.

QIP pricing is guided by SEBI guidelines and is based on a formula factoring in the weekly highs & lows of the certain period before the board meeting approving the QIP issue for allotment. (You would find many articles about it on the internet).

Regarding “what is the rationale which actually slows the company’s growth post QIP period?”, we are not sure whether raising additional equity via QIP would result in a slowdown of the future sales/business growth of the company.

Regarding pledging of shares by promoters:

You may read our views in the following article: Preference Shares and Pledging of Shares by Promoters (Q&A)

Hope it answers your queries.

All the best for your investing journey!

Regards

Dr. Vijay Malik

P.S.

 

DISCLAIMER

  • The above discussion is only for educational purpose to help the readers improve their stock analysis skills. It is not a buy/sell/hold recommendation for the discussed stocks.
  • I am registered with SEBI as an Investment Adviser under SEBI (Investment Advisers) Regulations, 2013.
  • Currently, I do not own stocks of the companies mentioned above in my portfolio.

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