From Khadim to S Chand & Co: 11 cos' market-cap slips below IPO issue size

Coffee Day Enterprises, the parent company of India's largest coffee chain Cafe Coffee Day (CCD), has lost Rs 2,400 crore market capitalisation (market-cap) in past eight days after the its founder chairman V G Siddhartha passed away.

The stock is trading at Rs 77, the lowest level since its listing on November 2015, and has slipped 77 per cent from its initial public (IPO) price of Rs 328 per share. If the current trend sustains, there are chances that the market-cap, which now stands at around Rs 1,630 crore, slips below Rs 1,150 crore – the amount it had raised via the IPO route.

The current weakness in the market, especially the mid-and small-cap segments, has dented the fortunes of nearly a dozen companies that raised funds via IPOs during last five years with their market-cap slipping below their respective issue size.

The market-cap of 11 companies, including S Chand & Company, Khadim India, UFO Moviez India, Navkar Corporation, Bharat Road Networks and Manpasand Beverages, has slipped below the issue size. These 11 companies had collectively raised Rs 5,032 crore from public issues and currently have a combined market-cap of Rs 2,961 crore. The stocks have plunged between 65 per cent and 98 per cent against their respective issue price.  

There could be more pain in store for these stocks as analysts expect the markets to remain under pressure for some more time given the domestic and global developments.  

"The Nifty and the broader markets have corrected substantially from the recent highs, led by deepening economic pressures, weak earnings growth and certain policy decisions in the Budget on taxation. Also, tepid commentaries from corporates suggest more legs to earnings downgrades. Mid-caps are more vulnerable to the ongoing liquidity and credit availability pressures in the economy, in our view," says Gautam Duggad, head of research at Motilal Oswal Financial Services.

Besides weak market sentiment, these stocks have been dented by sub-par earnings of these companies. On a combined basis, these 11 companies have posted a net loss of Rs 150 crore for financial year 2018-19 (FY19), as against a combined profit of Rs 327 crore in FY18. 

Among individual stocks, S Chand & Company, for instance, has plunged 91 per cent to Rs 61 as against its issue price of Rs 670 per share. The company had raised Rs 728 crore via IPO and currently has a market-cap of Rs 219 crore. The issue got a good response from investors and was subscribed 59 times.

As regards corporate earnings, Sunil Tirumalai, head of research at Emkay Global, believes the markets at the current juncture are factoring in a steep 20-30 per cent growth rate for FY20/FY21. Despite the recent correction, he says, the Nifty valuation (17.5x one-year forward) is not factoring in further earnings risks.

"The earnings cut momentum is also broadening, with 38 of 50 Nifty stocks seeing cuts in July'19. In this context, the elevated price-to-earnings (PE) levels of the Nifty suggest that further earnings cuts are not yet priced in. This underpins our overall cautious stance on the market," Tirumalai says.