Small IPOs giving huge returns

Prakash Steelage doubles in four sessions.

The share price of the newly-listed Prakash Steelage Ltd (PSL) has doubled in just four trading sessions. PSL is the latest to join the long list of small companies which have given spectacular returns after they were listed.

The stock of the Gujarat-based company touched a high of Rs 242 on the Bombay Stock Exchange (BSE) and Rs 243 on the National Stock Exchange (NSE) as against the issue price of Rs 110. The shares were listed on August 25 after the company raised Rs 68.75 crore through its initial public offer (IPO). However, it was last traded at Rs 216 on NSE and Rs 222 on BSE.

The stock was the top traded counter among the ‘B’ group stocks on BSE, generating a turnover of nearly Rs 500 crore. The turnover on NSE was over Rs 677 crore.

The company makes seamless and stainless steel pipes, tubes and u-tubes. It has two production units — one at Silvasa in Dadra and Nagar Haveli and the other at Umbergaon in Gujarat. This IPO will fund a 3,400-tonne expansion of the Umbergaon facility, which the company expects to operationalise by October 2010.

The issue, open between August 5 and August 10, had attracted huge participation from non-institutional investors and was subscribed 4.53 times. The retail portion was subscribed 6.62 times, high net worth individual portion 10.91 times and the qualified institutional buyer portion 1.27 times.

“Investors should be cautious. It is a small issue and so the share price is moving dramatically. The moves have been frantic. The issue price of Rs 110 translates into a post-issue price to earnings of 9.8 to 10.8 times 2009-10 earnings compared to the seven times for the more diversified, less-leveraged and larger companies like Ratnamani Metals,” said a Mumbai-based broker.

Among other IPOs that gave double returns in just a few trading sessions this year include Jubilant Food Works (up 284 per cent), which touched a high of Rs 558 from the issue price of Rs 145. The stock was listed on February 2 and touched a high on February 23.

ARSS Infrastructure Prokects rose 214 per cent from the issue price of Rs 450 to Rs 1,416 between March 3 and July 29; Aqua Logistics gained 189 per cent from the issue price of Rs 220 to Rs 635 between February 23 and August 30; Thangamayil Jewellery was up 129 per cent from Rs 75 to Rs 172 between February 19 and August 26; Aster Silicate rose 116 per cent in just three trading sessions from the issue price of Rs 116 to Rs 255 between July 28 and July 30; and Syncome Healthcare gained 116 per cent from the issue price of Rs 75 to Rs 162 between February 3 and March 26.

Year to date, the BSE Sensex has risen around 20 per cent while the BSE mid-cap index and the small-cap index have risen around 30 per cent.

Midfield Industries, Texmo Pipes, DQ Entertainment, Talwalkar Fitness and Persistent Pipes rose between 63 per cent and 94 per cent in a few trading sessions after the listing.