Will Indigo or SH Kelkar also fall on their listing days?

Investors who applied for the Coffee Day IPO were disappointed because it fell about 18% on the listing day

Café Coffee Day’s (CCD) subdued listing on the markets has left investors perplexed on how other bigger issues -- Interglobe Aviation (IndiGo) and SH Kelkar -- will perform on the listing day. Before we go into details, it's important to know that IPOs are not just about listing gains.

In fact, there are two kinds of investors who apply for an IPO. First, the long-term investors who want to participate in an IPO not only because they like the company, its business model and its valuation, but also because they feel they will be investing in the company at the same price as some of the smartest money in the game. Private equity players apart, IPOs offer long-term investors a level-playing field to get in at the same price as everyone else.

The second type of investors are those who want to play the listing gains. They are hopeful that the stock will rise on the listing day and they can make a quick buck out of it. This is the type of investor who is disappointed by a lower opening than the offer price.

The fact that CCD was loss making and is a holding company of a number of other businesses was known to the investor. But the management commentary that the company will turn around and start showing profits from the current fiscal is what attracted investors to the company.

While there are apprehensions about IndiGo and SH Kelkar in terms of their listing day performance, the long-term investors have little to worry about. Here is why:

The recently announced aviation policy is expected to be beneficial to the entire sector. IndiGo, being the largest aviation player with a market share of 37.4% as on August 2015, is in the right spot to capitalise on it. Being the seventh largest low-cost carrier globally and one of the most efficient, it is in a position to make the most out of the policy intending to increase the number of airports in the country. The company, with a fleet of 97 Airbus aircraft and a plan to add 430 more, will gain from the government’s incentives to the MRO (maintenance, repairs and operations) segment.

Most analysts who had covered the company’s IPO said the issue is richly priced. Yet, the issue was over-subscribed, despite a lot of negative news surrounding the company due to its high dividend payout just before the issue. 

IndiGo, even if it lists near the offer price may impact short-term returns, but there is no doubting the fact that the company is the best play in the sector and will give good long-term returns.

For SH Kelkar & Company, the oversubscription of 27 times itself tells the story of how desperately investors want a piece of the company. SH Kelkar is India’s oldest and most renowned manufacturer and supplier of fragrance & flavours. The company, which commands a market share of about 20% in the fragrance industry catering to more than 3,700 clients across India, has a global market share of 2% and it supplies to about 400 international customers.

However, analysts felt that the IPO valuation was steep on FY15 basis, but the recently concluded expansion offers high scope for growth. Further, the company is the first to be listed in the fragrance and flavours space, which caters to both lifestyle and food industry, and therefore, it will be relatively secured from a slowdown.

The three companies are from various industries, but all are market leaders and have the best operational numbers in the space. For a long term investor, the small blip during listing is an opportunity to add the stock. For a short-term investor who invested for listing gains, it is a gamble that did not pay off.