With the key benchmark indices hitting new highs in the last few days, it was only a matter of time before irrational exuberance caught up with investor sentiment. On Tuesday, the stock markets witnessed one of the most spectacular public listing in the last 15 years when Avenue Supermart’s shares gained 114.3 per cent on its first day at the bourses.

The last time an IPO received such a premium was in 2011, when Birla Pacific Medspa Ltd’s shares zoomed 153.5 per cent on debut. That stock is suspended from trading now.

There are multiple reasons why investors gave a big thumbs up to Avenue Supermarts Ltd, the promoter of D-Mart retail chain. The food and grocery retailer is among the largest and most profitable in the country, with low leverage and a faithful customer base in the western markets. Its public issue was widely recommended by the analyst community for its strong business model and good fundamentals. Retail investors latched on to promoter RK Damani’s fame as an experienced investor and stock picker.

A midas touch Damani, in his earlier avatar, was an ace stock trader known to have a midas touch. But analysts said despite good fundamentals, nothing justifies the valuations.

Speaking to BusinessLine , Kamlesh Rao, CEO, Kotak Securities, said: “I think the fanfare on the listing day was unwarranted, even though I agree that the business is on a sound ground. It seems that the market paid a premium for that. I think the listing gains also had to do with the general feel-good factor in the market after the UP election results. “Otherwise, it doesn’t make much sense for a distributor of FMCG products to be valued the same as a manufacturer of FMCG products. There wasn’t much selling in the stock today but I think the price can be expected to rationalise in the short-term; it can come down maybe by ₹50-80 a share.”

The stock, which had an issue price of ₹299, peaked at ₹650 intraday on the BSE, closing its debut trading day at ₹640.75. Its public issue for ₹1,870 crore was meant primarily to pay back debt and expand the number of stores. Now, however, with Tuesday’s action, the stock is trading at 68.8 times the price-to-earnings multiple (on 9-month FY17 annualised numbers).

Market experts said the exuberance seen in Avenue Supermart’s listing success is a one-off event and does not extend to the general public issue scene. Last week, the shares of Music Broadcast, which operates the FM channel Radio City, gained a modest 24 per cent on its listing day.

Meanwhile, CL Educate’s public offer — the company offers education content and owns the Career Launcher brand — has seen just over half of its ₹239-crore offer subscribed at the end of the second day.

Vaibhav Agrawal, Vice-President, Research, Angel Broking, said what attracted retail and high networth investors to the D-Mart stock was Damani’s brand name, who is known to be a “wealth creator”. “I think you will see a 10-15 per cent drop in the stock price over the coming days,” Agrawal said. “I think the next big successful IPO will be that of NSE, but it all depends on how much the company leaves on the table for investors to be interested in it,” Agrawal concluded.

Related Topics
comment COMMENT NOW