SKS Microfinance IPO: What Went Wrong?

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Case Details:

Case Code : LDEN075
Case Length : 26 Pages
Period : 2000-2011
Pub Date : 2011
Teaching Note : Available
Organization : SKS Microfinance
Industry : Microfinance
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Introduction Cont...

This fall was even more dramatic considering the initial surge in SKS share prices after the shares were listed on the Indian stock exchanges [the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE)]. On the market debut day (August 16, 2010) SKS shares rose to gain 18% and later climbed even more to return a commendable market return of 51% within a matter of two months (with an intraday high price of Rs.⁵ 1490.70 on September 28, 2010).⁶ Its IPO bidding price was in the range of Rs. 850 to Rs. 985 with an issue price of Rs. 985 per equity share⁷ for an equity share having a face value of Rs. 10. No wonder then, that investors were completely in the dark about what had gone wrong with their investment.

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More so, as the IPO had been oversubscribed just a few months earlier by about 13.55 times (taking all investor segments together).⁸

SKS had the biggest and the best names on the list of its investors with the likes of George Soros [through his hedge fund Quantum (M) Ltd], N. R. Narayana Murthy (co-founder and Chief Mentor, Infosys Ltd.) and Vinod Khosala (co-founder of Sun Microsystems, a longtime partner at Kleiner Perkins Caufield & Byers and a Venture capitalist through his own Khosla Ventures), to name a few.

Introduction cont.. - Next Page>>

5] Rs. = Indian Rupees or INR. As of October 2010, US$ was approximately equal to Rs. 45.38.
6] SKS Cuts Interest Rate to 24.55%, Business Standard, January 12, 2011.
7] SKS Microfinance Fixes IPO Issue Price at Rs 985 per Share, Hindustan Times, August 3, 2010.
8] Prashant Mehra and Jui Chakravorty, -India‘s SKS Microfinance IPO Subscribed 13.55 Times, Reuters, MUMBA, August 2, 2010.

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