After the robust listing of some initial public offers (IPOs) in recent months, grey market operators have started quoting premiums for the forthcoming issues.
The IPOs of Gujarat Pipavav Port, Picrosec Finance, CTV Network, Ashok Buildcon and VA Tech Wabag are quoting at 12-32 per cent premium. However, operators said there was not much activity, as retail investors were not coming forward to book trades and not many were willing to lend money for investing in IPOs. At the peak of the stock markets in 2008, the grey market turnover had crossed Rs 1,000 crore. Mumbai, Gujarat, Rajasthan, Madhya Pradesh, Delhi and Indore are the prominent centers where punters bet in the grey market.
Grey market operators include big brokers, high net worth individuals and even merchant bankers. To get an IPO subscribed, brokers and merchant bankers often rig the premium in the grey market to attract investors. Once the issue is listed, punters buy on exchanges at a higher price to settle their grey market trades, which is why share prices usually witness a sharp rise after listing.
INDICATIVE PREMIUM
Company
Offer Price(Rs)
Premium (%)
Gujarat Pipavav Port
46
20-22
Microsec Fin
110-120
30-32
CTV Network
100-110
16-19
Ashok BuiId con
280-300
12-15
VA Tech Wabag
1,200-1,300
18-20
EARLIER
Gujarat Pipavav Port
46
12-15
Engineers India
275.5
8-10
SKS Micro Fin
985
5-7
Bajaj Corp
660
10-12
Prakash Steelage
110
4-7
“After the success of Prakash Steelage’s issue, grey market operators have set their eyes on Microsec Financial Services (MFSL). Microsec, which is likely to open this month for subscription, is likely to be a repeat of Prakash and SKS Microfinance,” said a punter.
Rating agency Crisil has assigned a IPO grade of 2/5 to the issue. This indicates that the fundamentals of the IPO are below average compared to other listed equity securities in India.
MFSL is a financial services company that focuses on providing retail broking and investment banking services. The company also offers loans against shares to support its broking business. Its other services include commodity broking, insurance broking and distribution of financial products.
The share price of Gujarat-based Prakash Steelage doubled in just four trading sessions after listing on the Bombay Stock Exchange (BSE) on August 25. The stock rose to a high of Rs 242 on BSE and Rs 243 on the National Stock Exchange (NSE) as against the issue price of Rs 110. However, the stock was on Thursday quoting at Rs 161 on BSE.
Among other IPOs that almost doubled in a few trading sessions this year were Jubilant Food Works (up 284 per cent), which touched a high of Rs 558 from the issue price of Rs 145. ARSS Infrastructure Projects rose 214 per cent from the issue price of Rs 450 to Rs 1,416; Aqua Logistics gained 189 per cent from the issue price of Rs 220 to Rs 635; Thangamayil Jewellery was up 129 per cent from Rs 75 to Rs 172; Aster Silicate rose 116 per cent in just three trading sessions from the issue price of Rs 116 to Rs 255; and Syncome Healthcare gained 116 per cent from the issue price of Rs 75 to Rs 162.
IPO MICROSEC -The company recorded a total income of Rs 38.93cr and net profit of Rs 8.61cr. for FY 09. For the half year ended 30-09-09, the figures were Rs 27.59cr and Rs 10.94cr, respectively. Assuming that the company is likely to post an EPS of Rs 8/- for FY11 (on the post issue capital of Rs31.18cr), the company is demanding an valuation of 15x, which appears on the high side, considering further scalability of business and competition.
At Rs 113 ? 118, the shares are over priced. Avoid subscription. FIRST CHOICE IPO.
Currently, the company has 160 MWp capacity with an average efficiency rating of 16+% peaking at 17.2%. Production capacity is to be expanded to 260 MWp by end of 2011 fiscal year. For the FY 10, the total revenue recorded by the company is Rs131.48cr and a net loss of Rs 66.21cr.
INDOSOLAR IPO - The company should have consolidated its operation before going in for expansion. The company's past history nor the industry it is in justify the premium sought. During this time last year, EURO Multivision, a company that manufactures Photovoltaic Solar cells, issued shares in the price band of Rs70-75. The shares are now quoting around Rs32/-
FIRST CHOICE IPO ANALYSIS
INVESTORS ARE ADVISED TO STAY AWAY FROM THE ISSUE.
Grey market creates artificial demand and traps innocent investors. SEBI should step-up vigilance against the promoters/brokers/merchant bankers nexus in this respect. Ultimately, it is the fundamentals what matters. Look at the share prices of Aster silicate and Syncon Heath care. After gaining more than 100% on listing, these shares are now quoting at 30-40% discount. The grey market business is not good, in the long run.
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