M-cap of 11 firms slips below IPO issue size

Coffee Day Enterprises, the parent company of Café Coffee Day (CCD), has lost ~2,400 crore in market capitalisation (m-cap) in the last eight days following the demise of Founder- Chairman V G Siddhartha.

The stock is trading at ~77, the lowest level since its listing in November 2015, and has slipped 77 per cent from its IPO issue price of ~328 per share. If the trend sustains, there are chances of the m-cap, now at ~1,630 crore, slipping below ~1,150 crore — the amount it had raised via the IPO route.

The current weakness in the market, especially in the mid- and small-cap segments, has dented the fortunes of nearly a dozen firms that raised funds through IPOs in the last five years, with their m-cap slipping below their respective issue price.

M-cap of 11 entities, including S Chand & Company, Khadim India, UFO Moviez India, Navkar Corporation, Bharat Road Networks and Manpasand Beverages, has slipped below their issue size. These 11 firms had collectively raised ~5,032 crore from public issues, and have a combined m-cap of ~2,961 crore at present. Their shares have plunged between 65 and 98 per cent against their respective issue price.

“The Nifty and broader markets have corrected substantially from their recent highs, led by deepening economic pressures, weak earnings growth, and certain policy decisions in the Budget on taxation. Further, tepid commentaries from corporates suggest more legs to earnings downgrades. Mid-caps are more vulnerable to the ongoing liquidity and credit crunch in the economy,” says Gautam Duggad, head (research), Motilal Oswal Financial Services.

Besides weak market sentiment, shares of these firms have been dented by sub-par earnings. On a combined basis, these 11 have posted a net loss of ~150 crore for FY19, compared to a combined profit of ~327 crore in FY18.

Regarding corporate earnings, Sunil Tirumalai, head (research), Emkay Global, believes the markets at the current juncture are factoring in a steep 20-30 per cent growth rate for FY20/FY21. Despite the recent correction, he says, the Nifty valuation (17.5x 1-year forward) is not factoring in further earnings risks.

“The earnings cut momentum is also broadening, with 38 of 50 Nifty stocks seeing cuts in July. In this context, the elevated price-to-earnings levels of the Nifty suggest further earnings cuts are not yet priced in. This underpins our overall cautious stance on the market,” Tirumalai says.