NHPC stock lists at 8% premium

Analysts feel that other IPO aspirants may review price.

Power producer NHPC’s shares failed to enthuse retail investors when they opened today for trading, damping the prospects of forthcoming public issues.

The stock opened at Rs 39, 8 per cent above the offer price of Rs 36. It ended the day at Rs 36.75 on the Bombay Stock Exchange.

The muted response to NHPC’s shares comes within two weeks of a damp debut for another power producer, Adani Power. Adani shares are trading at Rs 102.70, up 2.7 per cent from the issue price of Rs 100.

Analysts said other power companies planning initial public offers (IPOs) had already started reviewing their price expectations. Tata Power, Jindal Steel and Power and Indiabulls Power are planning IPOs shortly. The trend could also weigh on Oil India’s IPO, they said.

Analysts said the response was tepid because these issues were priced on the higher side.

“NHPC and Adani Power issues were aggressively priced. The impact of these issues will be seen on forthcoming IPOs, which may not witness such high subscription levels,” said Nirmal Jain, chairman and managing director of brokerage house India Infoline. The pricing didn’t leave much for investors on the listing day, he added.

Deven Choksey, managing director of KR Choksey Shares and Securities, agrees. The pricing left nothing for retail investors or high networth investors (HNIs), he said, adding, “Adani and NHPC are long-term bets and considering these companies’ core businesses, it will be difficult for these stocks to witness any big spike in the near term.”

Vallabh Bhanshali, chairman, Enam group, the lead manager to NHPC and Adani issues, said investors should have a long-term perspective while investing in equity issues.

Chetan Majithia, head, Crisil Equities, said, “Perhaps the days of huge listing-day returns are over”. That may not be bad as a Crisil study of IPOs in the last two years has shown that interest has subsided even in cases where there have been huge listing-day gains. In 2007-08, some companies gave listing gains of over 100 per cent.

Majithia sees margin funding, tight pricing and market sentiment as the main reasons for the subdued performance of IPOs this time.

Selling pressure in the NHPC stock today came from HNIs who had subscribed to the IPO using margin funding from stock brokers. Margin funding allows investors to leverage their subscription. The interest rate for NHPC was around 12 per cent per annum.

According to brokers, the costing for HNIs who used margin funding came to around Rs 42 per share and they could make profit only above this level. While the IPO was subscribed 23 times, the portion reserved for HNIs was subscribed over 55 times.
 

VITAL STATS OF RECENT ISSUES
Print name	Date of list	Issue price	Listing price	Listing close	Current close	% chg*	Current m-cap
Edserv Softsys	2-Mar-09	60	55	137.55	97.05	61.75	116.56
Rishabhdev Tech	29-Jun-09	33	42	27.2	16.95	-48.64	24.9
Mahindra Holiday	16-Jul-09	300	315	317.1	335.6	11.87	2,826.76
Excel Infoways	3-Aug-09	85	93.05	95.65	90.05	5.94	190.64
Raj Oil Mills	12-Aug-09	120	125.05	119.3	86.8	-27.67	312.48
Adani Power	20-Aug-09	100	105	100.05	100.85	0.85	21,985.30
NHPC	1-Sep-09	36	39	36.7	36.7	1.94	45,143.57
* % chg over issue price; m-cap in Rs cr, other prices in Rs

However, Motilal Oswal, chairman and MD of Motilal Oswal Securities, said margin funding for the IPO was not as big an issue as the pricing itself. He said, “More than 20 times subscription means little allotment for HNIs and institutional investors. Hence, most borrowed money will come back in the form of refunds, leaving pricing as the most important issue.”

All hopes are, however, not lost. Prithvi Haldea, chairman, Prime Database, said, “Wait for the bull run to return for huge listing-day gains again.” Haldea said pricing couldn’t be blamed as the test of the pricing was the level of subscription and not listing gains.

Nilesh Shah, deputy managing director, ICICI Prudential AMC, is also hopeful. “Surely a time will come when investors will start making money on listing.”