Upbeat mood may revive stalled offerings

There were far fewer Initial Public Offers (IPOs) this year than in 2011. But those that made it to the market have delivered stunning returns to investors.

A share in jewellery retailer Tribhovandas Bhimji Zaveri (TBZ), offered at Rs 120 in its IPO, is worth Rs 287 today, a neat 139 per cent gain in barely six months. MT Educare and National Building Construction Corp, a public sector firm, delivered 50-60 per cent gains. The stock of Multi-Commodity Exchange is 49 per cent above its offer price. In fact, had you invested Rs 1,000 in each of the eight IPOs made so far this year, your ‘portfolio’ today would be up 75 per cent.

Unlike in the past, investing in IPOs this year has also been a better bet than buying stocks in the secondary market. Returns on seven out of eight IPOs have beaten the CNX 500 index, reckoned from their offer date. The only stock languishing below its offer price is Tara Jewels, which made its debut on Thursday.

Good companies in bad markets

In contrast to recent offers, the crop of IPOs from last year has not fared as well, with 22 of the 37 offers still languishing below their offer price.

So, how did the 2012 IPOs deliver these returns? The bad market conditions at the start of the year helped because that kept offer prices reasonable, say investment bankers.

“2012 was an ideal situation where you could buy good companies in bad markets at reasonable prices. Plus, some of these were quality companies. MCX, for instance, was in a unique business and it got a further boost from regulatory changes after the offer,” says Vikas Khemani, President and Co-Head of wholesale capital markets at Edelweiss.

Sandeep Singal, Co-head of institutional equities at Emkay Global, cites TBZ as an example of attractive pricing. The offer price had a good margin of safety and the stock is now catching up with the valuation multiple of retail companies like Titan, he points out. TBZ’s offer in April was made at a price-earnings ratio of 12, while Titan traded at over 35 times.

Better quality

SEBI’s crackdown on cases of blatant IPO manipulation last year has also helped weed out poor quality issuers from the market, say some market players. This is part of the reason why the number of offers dropped sharply from over 40 to just eight this year. IPOs this year have bagged better fundamental grades from rating agencies than last year’s offers. While IPOs of more established companies listed on the main NSE and BSE platforms have done well, those listed on the SME segment have not been so consistent.

Reviving activity

The good returns from recent offers combined with an upbeat market seem to be prompting quite a few issuers to revive their stalled IPO plans. Bharti Infratel, CARE Ratings and PC Jewellers are set to raise a combined Rs 5,500 crore this week.

But does this bunching up of offers means the party may be short-lived? That could lead to dwindling returns from recent offers too. All the five market players we spoke to disagreed, pointing that there are hardly any signs of market euphoria.

“Today, there is such deep pessimism. One can safely say that gains from the recently listed IPOs have really not gone to retail investors. They have gone to the institutional investors. So markets are nowhere close to peaking out now,” says Manish Sonthalia, V-P, Motilal Oswal Asset Management Company. Government decisions on pending reforms like FII taxation and FDI in retail and aviation have improved sentiment, says Singal.

Investment bankers were also of the opinion that the three IPOs hitting the markets next week could be easily absorbed by the markets. Indian markets are large and can easily absorb $1 billion or more in paper, said one of them.

aarati.k@thehindu.co.in

(This article was published on December 8, 2012)
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