Arvind Fashions listed on the bourses on Friday, where its shares ended at Rs 620, after hitting the 5 per cent upper limit. However, some investors alleged that the stock listed much below its fair value due to a flaw in the price discovery process.
Ahead of any new listings, stock exchanges conduct so-called ‘pre-open using call auction,’ a 45-minute price discovery process that allows investors to place bids before the actual trading starts. The price at which maximum bids are placed becomes the opening price. The open price is then subjected to trading limits of 5 per cent or 20 per cent, depending on the size of the company. The opening price for Arvind Fashions, both on the National Stock Exchange (NSE) and BSE, was about Rs 590.
Citing analysts’ recommendations, certain investors said the discovered price should have been higher. Stock exchanges couldn’t be reached immediately to verify the claims. Axis Capital, in a report, said that the fair value for Arvind Fashions is Rs 1,400.
Arvind Fashion is the branded apparel division of Arvind Ltd. The company was demerged on November 29, 2018, after Arvind shareholders were issued one share of Arvind Fashions for every five shares held. Arvind Fashions operates brands like Arrow, Tommy Hilfiger and US Polo.
“We initiate coverage on Arvind Fashions with a fair value of Rs 1,400 based on 17 times March 2021 EV/EBITDA target multiple, at 20 per cent discount to our target multiple for Aditya Birla Fashion and Retail, closest listed peer,” said the note from Axis Capital.
EV/EBITDA is the enterprise value of a company divided by its earnings before interest, taxes, depreciation and amortization.