One out of three QIPs underperform the market

Of the 21 firms that raised funds via this route, 7 are trading up to 50% lower

One of every three companies which raised funds via the qualified institutional placement (QIP) route in the past six months has seen its stocks underperform the markets. Of the 21 companies that raised funds via this route, seven are presently trading up to 50 per cent lower, while the benchmark S&P BSE Sensex has gained an average of 8.4 per cent in this period.

Collectively, these seven raised Rs 9,647 crore through QIPs. Of these, five — Reliance Communications (RCom), Jaiprakash Associates, GMR Infrastructure, Aban Offshore and KSK Energy Ventures — were trading more than 10 per cent below their offer price on Thursday.

The remaining 14 companies, on the other hand, have seen value appreciation of 23 per cent, to  Rs 13,394 crore. These 14 collectively raised Rs 10,919 crore through QIP issues. YES Bank, Idea Cellular, Gammon Infrastructure, Info Edge (India) and Ashok Leyland, among individual stocks, have seen their share prices rise 20-50 per cent after their respective QIP issues.

Analysts attribute the diverse stock performance to the lack of visible financial performance in select companies, especially those with high debt levels. Explains Deven Choksey, managing director and chief executive officer, K R Choksey Shares and Securities: “One of the most important reasons for their underperformance is that even after taking money from investors via the QIP route, the companies haven’t been able to come out of the balance sheet stress they had. On the other hand, companies like YES Bank and Ashok Leyland had a good business model and still continue to operate under one.”

RCom in July had raised Rs 4,808 crore by selling 338 million shares at  Rs 142.14 each to institutions. Similarly, Jaiprakash Associates and GMR Infra, which mobilised around  Rs 1,500 crore each, have seen a sharp decline in their market value after the QIP issues. “One major reason for the fall in stock prices post the QIP is that in most cases, the issues are accompanied by positive news flows and, hence, the stock prices tend to move up just before the issue. Post QIP, the news flows start tapering off and prices are driven solely by their fundamentals. In case the performance of those companies does not improve in some proportion to the rise in stock prices, they tend to find a bottom,” says G.Chokkalingam, founder and managing director, Equinomics Research and Advisory.

Stock strategy

Analysts suggest retail investors would be better off to stay away from stocks of highly leveraged companies till there is visible improvement in the fundamentals, especially when the markets are trading at record highs. “A retail investor would be better off if the investment decisions are based on actual fundamentals, rather than solely on news flows during QIP issues,” Chokkalingam says.

On Prestige Estates, Arun Aggarwal of Religare Institutional Research maintains a 'buy' rating on the stock, with a December 2015 target price of  Rs 290. He believes the company’s scale of business has improved and cash flows remain comfortable. This, along with a likely improvement in the lease momentum (and, thus, the leased portfolio) is likely to be value-accretive.

Among banking stocks, say analysts, YES Bank is a leveraged play on an economic growth revival and lower interest rates. “We believe the outlook continues to improve, albeit gradually. Management’s risk appetite is also recovering and its valuations remain amongst the cheapest, relative to peers. We raise our target price to  Rs  825 to reflect its higher economic leverage. It remains among our top picks in the sector,” say Manish Chowdhary and Sameer Bhise of IDFC Institutional Securities in a recent report.