The capital market regulator Securities Exchange Board of India (SEBI), asked Lava International Pvt Ltd to refile the IPO draft with certain revisions. The home-grown mobile manufacturing company filed a first Draft Red Herring Prospectus (DRHP) with SEBI in September 2021. Lava International planned to raise the fund through the initial share sale.
This decision of the market regulator not only delays Lava International IPO but also raises questions on the performance of Lava International Limited unlisted shares. It is not the only company whose IPO has been denied by SEBI; other unicorns like OYO and PayMate have gone through the same situation. If you don't know what refiling an IPO means, this post will explain it simply.
Why Did SEBI Ask Lava International To Refile An IPO?
SEBI usually rejects an IPO proposal and asks companies to refile it in a few situations. First of all, when companies don't include the KPIs required per SEBI regulations, in other cases, the capital market regulator advises unicorns or startups to refile an IPO with updates and revisions. There are various metrics like parameters for the offer price, material disclosure, risk factor, etc which SEBI looks out for a while accepting the Initial Public Offering (IPO).
The Lava International proposed IPO comprises 4,37,27,603 equity shares worth Rs 500 crore, and it gives an offer for the sale of 1.25 crore shares. In the IPO proposals, Lava International proposed to use the fresh issue for marketing and fund acquisition purposes.
SEBI shares an update on its website regarding the denial of Lava International DRHP. In the statement, the market regulator asked Lava officials to refile the IPO with updates and revisions. However, there are no specific updates or revisions mentioned by SEBI on its website. Lava International will have to file the DRHP again with the required updates.
Possible Reasons Behind Rejection Of IPO Proposal
In order to understand the reasons why SEBI rejected Lava International’s IPO proposal, you must be familiar with the SEBI criteria for accepting IPO documents. There are various considerations by the market regulator to protect the investors before they start tradingIPO shares. Here are the following reasons behind the rejection of an IPO proposal:
Existence Of Circular Transactions
If the company's IPO proposal contains circular transactions, SEBI can reject the proposals. There are also other criteria that the market regulator considers, like identifying the company's promoters. When a company doesn't mention the complete details of its current stakeholders or partners, there is a high chance that SEBI will reject the DRHP papers.
Incomplete Documentation
SEBI has strict rules regarding analyzing the capital and other key metrics of the companies willing to file an IPO. When the businesses provide invalid, vague or unverified information as per capital and disclosure regulations, there are higher chances that SEBI will advise for refiling an IPO.
Unsettled Conflicts
An unsettled conflict between the issuer, merchant, and stakeholders is also considered a red sign. There are a majority of cases when various company rivals request SEBI to reject IPO proposals due to unsettled conflicts. It happened in the case of OYO when Zostel wrote a letter to SEBI for rejecting OYO's IPO. However, there is no confirmation if SEBI accepts such applications and makes its decision. An unsettled conflict is one of the primary factors considered for accepting the IPO proposal by SEBI.
Lava International IPO proposal may get rejected due to any of these reasons. According to various sources, the company did not disclose the exact Lava International share price in the proposed IPO draft. After proper analysis of the DRHP documents, SEBI directs Lava International to refile the IPO papers as per the required updates and revisions.
Why Investing In Lava International Unlisted Shares Still Beneficial?
Lava International is India's leading mobile manufacturing company operating in multiple countries. It was founded in 2009 by Hari Om Rai, Sunil Bhalla, and Shailendra Nath Rai. The company is headquartered in Noida, India and has overseas operations in countries like Bangladesh, Nepal, Mexico, Indonesia, and more.
Lava International is known for its affordable and industry-leading mobile handset devices. It is a public company that provides its unlisted shares for trade in the Pre-IPO market. In FY21, Lava generated more than Rs 5,000 crore in revenue with a net profit of Rs 173 crore. Based on recent data, the Lava share price in the market is Rs 135. Here is the detail of Lava International unlisted shares:
| About Lava International unlisted shares | Value |
| Face Value | Rs 5 per equity share |
| ISIN | INE745X01022 |
| Lot Size | 100 shares |
| Availability of unlisted shares price | Rs 135 per share |
| Total Available Shares | 1000 |
Moreover, the Pre-IPO lava share price has shown positive results in the past few years. Its highest value in FY21 was Rs. 141, while its all-time lowest value was Rs. 101 in FY18. Since the company is planning to bring its IPO at the end of 2023, investing in Lava International unlisted shares at this time is beneficial. Right now, the value of shares is high, and the risk factor is also nominal.
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