CHANGING VOLUME MIX HIGHS AND LOWS
Reduction in borrowing, expanding share of non-coal products and non-Mundra ports are positives
FY15 FY16 FY17 FY18E Product mix (%)
High subscription numbers during an initial public offering (IPO) may be no guarantee that the stock will continue to make money for investors long after the company lists. An analysis of the top 50 companies which saw the most subscription during their public share sales since 2003 reveals that more than half of them are currently trading below their issue price.
Most of these companies belong to the infrastructure and real estate sectors and got themselves listed between 2005 and early 2008, the peak of the earlier bull run. Zylog System, Consolidated Construction Consortium, ABG Shipyard, FCS Software and Parsvnath Developers have seen an erosion of more than 90 per cent in their share prices since listing. Reliance Power, one of the biggest IPOs to date with an issue size of over ~11,000 crore and which had seen subscription of 60 per cent more, is down 86 per cent.
“It is not necessary that a company which was deemed a good investment proposition during or before its IPO will continue to remain so indefinitely. After listing, a combination of factors including the macroeconomic situation, sectoral trends and the company’s own performance vis-à-vis its peers will determine the movement of its stock price. So, investors should not look at just the subscription numbers while putting money in a listed entity,” said Pranav Haldea, managing director, Prime Database.
According to experts, companies that hit the market with valuations solely dependent Zylog System Consolidated Construction ABG Shipyard FCS Software Parsvnath Developers Maytas Infra Reliance Power ARSS Infrastructure Proj DQ Entertainment (Intl) Akruti Nirman on the future earnings potential, business trajectory and post-money valuation have a higher likelihood of correcting after listing. Post-money valuation is a company’s value after outside financing or capital injections are added to its balance sheet.
Among the companies with high subscription numbers, Tech Mahindra, Mindtree Consulting, Dwarikesh Sugar, Info Edge (India) and ICRA have gained between 324 per cent and 1,158 per cent.
The primary market has got a boost after the new government came to power in May 2014. Unlike previous years, a lot of new-age companies in information technology, health care and microfinance have tapped the market. According to experts, the quality of issuances have been generally good — many of these entities, particularly those that hit the market in 2015, left money on the table for investors.
However, experts believe that investing in IPOs are fraught with a greater risk than putting money in listed companies. Retail investors don’t have the time, bandwidth and understanding to research stocks, and are better off coming through the mutual fund route, they said.
“Retail investors should look at the pattern of institutional shareholding prior to the IPO and institutional interest during the IPO. They should look at the company’s financials, promoter track record as well as the company’s corporate governance track record before investing,” Haldea said.