Dice loaded against investors in most IPOs this year

Management quality and issue price are key concerns for investors; over 60% of the issues this financial year are trading below issue price.

While the recent PSU IPOs have had an overwhelming response from investors and performed well after listing, over 60 per cent of the IPOs which have hit the market this financial year have dropped below their issue price. Considering that only 14 IPOs out of the 37 that have hit the market in the current financial year have rewarded investors with positive returns, analysts believe that in a majority of the cases the fundamentals were not up to scratch or were expensively priced. Further, of these IPOs around 12 closed with a negative gain on the first day of listing.

Return to quality
Analysts cite the example of Claris Lifesciences which had to cut its issue price and extend its closing date as a result of the muted response by investors. In contrast, despite the not too conducive market conditions, public sector company Manganese Ore India witnessed an overwhelming response. The IPO was oversubscribed a whopping 33.3 times. Analysts mention in the case of Claris Lifesciences, the issue of corporate governance has been highlighted as the biggest worry. This is also one of the reasons the IPO was graded three on the scale of five. In the case of MOIL, the IPO grading was highest at five, which indicates strong fundamentals of the company. Analysts believe there is money to be made if investors’ concerns on quality and pricing are met. Investor interest is coming back, especially after the huge success of Coal India, where the retail investors made decent money. Market participants also believe that companies and bankers are now willing to leave more money on the table for investors, given the poor condition of the primary market. Post the poor listing of some of the IPOs, the investors had kept away from the primarily market. However, investors are now becoming more selective and choosing companies which have good fundamentals along with appropriate pricing.

The losers
Typically in a scenario when the markets are up, the sentiment is bullish and liquidity is enough, all the good and low-quality issues hit the IPO market to cash in on the sentiment. Smaller companies which score very low on the fundamentals have topped the list for destroying the wealth of investors. In the list (see table) so far, companies like Aster Silicates, Tirupati Inks and Tarapur Transformers are among the top losers post the listing. There are other cases where the pricing has been expensive. Companies like SJVNL, Ashoka Buildcon and Electrosteel score high on the fundamentals but are trading marginally below their issue price due to the expensive pricing of the issue.
 

HITS AND MISSES
	Issue price (Rs)	Times  subs.	CMP	Listing	Till date
				Gains (%)
Midfield Ind.	133	12.85	419.20	22.6	215.2
Talwalkar Fitness	128	28.21	271.60	27.0	112.2
Gravita India	125	42.24	260.25	68.3	108.2
Mandhana Ind.	130	5.44	265.20	2.8	104.0
Prakash Steelage	110	4.23	159.05	70.9	44.6
Career Point	310	41.24	421.95	104.0	36.1
Aster Silicates	118	4.68	40.25	68.7	-65.9
Tirupati Inks	43	9.20	17.20	-14.8	-60.0
Tarapur Trans.	75	1.65	34.65	-24.1	-53.8
Cantabil Retail	135	1.98	73.35	-22.4	-45.7
Microsec Financial	118	11.99	70.10	-6.0	-40.6
Nitesh Estates	54	1.13	36.60	-5.6	-32.2
CMP: Current market price                                   Source: BS Research Bureau

The gainers
Although there are very few gainers, companies like Midfield Industries, Talwalkar Fitness, Gravita India and Career Point Infosystems are among those giving positive returns to the investors post their listing. Analysts believe in most cases the pricing of the IPOs was reasonable along with the good fundamentals and a strong business case. Also, most of these IPOs were oversubscribed by a good margin, leading to investors’ interest in these companies post their listing.

Companies like Gravita India were oversubscribed 42 times and Talwalkar Fitness 28.2 times. Both the companies, post their listing, have more than doubled from their issue price.