Markets disillusioned with stocks trading below QIP prices

Investors of JP Associates, RCom and GMR Infra are the biggest losers

Rush for qualified institutional placements (QIPs) - when companies tap equity markets to raise capital - are seen as a precursor to a reviving market. 

This is exactly what happened post the announcement of election results in May last year. Modi government’s thundering victory raised expectation of pro-business policies after years of governance paralysis under the UPA. But an analysis of companies taking QIP route shows that the environment has not really changed at the pace it was expected.

Nine out of 35 companies, near 26%, who took this route since election results are trading below their QIP price. The benchmark index of Bombay Stock Exchange, Sensex has rallied about 20% to 28,975 since then.

The institutional investors of Jaiprakash Associates, Reliance Communications and GMR Infrastructure are the biggest losers. Their stocks are trading 64%, 49% and 41% below the QIP price respectively. These three companies were also among the early ones to tap the QIP market in July.

“Post the election results a lot of expectation was built up that saw rally in all the stocks, but gradually markets started differentiating between those with strong balance sheet and those having highly leveraged books,” says Jagannadham Thunuguntla, head of fundamental research at Karvy Group. “The expectation was that leveraged companies will be able to repair their balance sheets quickly with monetising of assets, but that did not really happen in many cases,” he says.

Losers are largely dominated by companies from the infrastructure sector. There was an expectation that woes of infrastructure sector will be resolved quickly by the new government and capital expenditure cycle will revive fast, but that has not happened.

“There was also an expectation that interest rates will come down, helping the debt ridden companies manage their costs better; but that has not happened,” says Ajay Garg, manaing director at Equirus Capital.

QIP
DATE	Name	Issue Price	Feb 23,2015	%chg
11/7/2014	Jaiprakash Associates	70.27	25.05	-64.35
3/7/2014	Reliance Comm	142.14	70.25	-50.58
10/7/2014	GMR Infra	31.50	18.25	-42.06
9/7/2014	Aban Offshore	695.50	476.55	-31.48
1/10/2014	Jyoti Structures	42.85	34.00	-20.65
11/6/2014	KSK Energy Ventures	99.00	81.00	-18.18
2/12/2014	CEAT	890.00	768.80	-13.62
10/11/2014	CESC	644.00	597.15	-7.27
29/1/2015	Supreme Infrastructure	277.39	258.90	-6.67
Source:BSE
Compiled by BS Research Bureau

But there are also companies who have done well following the QIPs. Ashok Leyland is trading at about Rs 68 a share, 89% up from its QIP price of Rs 36.

“The companies that raised equity to pursue growth have done well,” says Nitin Jain, CEO, Retail Capital Markets & Head Global Asset Management Edelweiss.

Post the election results, there were investors willing to allocate a part of their fund to debt ridden companies as they thought that earning of troubled companies will improve quickly in the changed environment, giving them the benefit of financial leverage. This helped Jaiprakash Associates, Reliance Communications and GMR Infra succeed in the QIP market.

“Markets became very optimistic post the election results, changes are happening but not at the pace it was visualised,” says Jain.