For IPO returns, go niche

These companies have delivered high post-listing gains in the last year or so.

Initial public offers (IPOs) of companies in niche businesses have provided good returns since last year. During this period, most public issues have given dismal returns despite the sharp rise in the secondary market. Experts said high growth prospects of these companies made them attractive despite their high price to earnings (P/E) ratios.

Those that have provided returns of over 25 per cent to the issue price include franchisee for Domino’s pizza, Jubilant FoodWorks, travel company Cox & Kings, travel and leisure company Mahindra Holiday & Resorts, and education company Edserv Softsystems.
 

ATTRACTIVE OFFERS
Company	Issue  price	Current  market price	% Gain
Edserv Softsystems	60	263.15	338.60
Jubliant Food Works	145	231.25	59.50
Mahindra Holiday Resorts	300	433.80	44.60
Cox & Kings	330	421.05	27.60
Infinite Computer Solutions	165	205.00	24.20
Price in Rs

“Growth prospects of these companies are better and there are no benchmarks,” said Kaushal Aggarwal, managing director, Avendus Capitial, an investment bank and broking firm. He said any business that was different would get good valuations.

Experts said most of these companies had their niche areas. They said there was hardly any company that could be compared to Mahindra Holiday & Resorts, whose main business was to offer holidays packages through memberships. Similarly, for Cox & Kings, the only listed competitor is Thomas Cook India. In case of Jubilant FoodWorks, there is hardly any listed food company that can match the customer loyalty for Domino’s pizzas, while Edserv’s closest rival is Educomp Solutions, which is already trading at a high P/E ratio, say experts.

“You will always have a monopoly premium,” said Ajay Parmar, head of research, Emkay Global Financial Services.

Since the beginning of last year, the IPO market has been dominated by power sector companies and most of them are trading marginally above or below the prices at which their shares were issued.

However, Prithvi Haldea, managing director, Prime Database, said peer comparison was not the yardstick for listing gains, which depended on companies’ future prospects. He said people would give a higher price for such companies. Haldea points out that a business which is good now may not remain so in future too. He said Jet Airways was listed at a premium in 2005 but was now trading below the issue price, mainly due to the downtrend in the aviation sector.

Experts say companies in niche businesses will get investors irrespective of the market conditions. “The market is tired of power IPOs. Anything which is different will find investors,” said Aggarwal of Avendus. He said if a solar power company comes out with IPO, it would give good returns.

Emkay’s Parmar says these companies have low floating stock and even small trades affect their stock prices.