70 per cent of last year’s initial public offers trade below offer price.
The last financial year wasn’t great for investors in initial public offers (IPOs). With nearly 70 per cent of the 51 IPOs quoting below their offer price, wealth erosion has been high. The overall loss to investors: In the excess of a whopping Rs 3,600 crore, excluding the gains from Coal India.
Even if one looks at the number of IPOs that delivered positive returns versus negative returns, investors seem to have lost. In fact, these stocks have performed worse than the broader markets as well. The 35 losing IPOs, most of which are small companies and saw little participation from institutions, are currently quoting below the issue price and have lost 38 per cent on average. In absolute terms, the loss to investors is Rs 4,700 crore.
The few gainers, Coal India, Talwalkar Fitness, MOIL, Gravita India and Gujarat Pipavav Port, saw a steady up move in the share price and outperformed the Sensex. The average gain of 16 IPOs quoting above their offer price is 68.5 per cent. In absolute terms, gains made through these IPOs are nearly Rs 8,100 crore. However, if one excludes the wealth creation by Coal India, which is a little over Rs 7,100 crore, the picture is far from comforting.
The leaders among losers in absolute terms include Jaypee Infratech, SKS Microfinance and Orient Green Power. The three IPOs have collectively destroyed investor wealth of nearly Rs 2,100 crore. Two public sector companies — SJVN and Punjab & Sind Bank — have lost nearly Rs 185 crore and Rs 46 crore, respectively. Prestige Estates, Bajaj Corp, Ramky Infra, Nitesh Estates and Eros International Media are among other known companies that figure on the losing side.
In percentage terms, the Gyscoal Alloys, Sea TV Networks, Tirupati Inks, Aster Silicate, Cantabil Retail, Commercial Engineers & Body, Tarapur Transformers, Microsec Financial, BS Transcomm and Midfield Industries are among the top losers. These are down between 50-80 per cent from their respective offer price. All these issues were below the size of Rs 200 crore and were rated 1-2 by rating agencies. Grade 1 suggests poor fundamentals and grade 2 suggests below-average fundamentals.
The grading per se can be quite deceptive. “Retail investors generally do not see any fundamentals before investing in IPOs. However, some of the IPOs which had a lower grading of 1-2 like Sudar Garments, Fineotex Cables, Bedmutha Industries and Midvalley Entertainment, are still trading above their issue price," says investment advisor S P Tulsian.
The grading reflects a company’s fundamental strength. But investors need to look at grading in conjunction with the offer pricing and the market sentiments (post listing) as other factors.
There are other factors at play, as well. At times, operators become distributors of shares for promoters. “Some operators strike a pre-IPO deal with promoters and rig the counter to invoke investor interest. After this, they make a swift exit,” added Tulsian.
| TOP GAINERS AND LOSERS In percentage terms | |||||
| Company | In % | *(Rs cr) | Company | In % | *(Rs cr) |
| TOP IPO LOSERS |
TOP IPO GAINERS | ||||
| Glyscoal | -76.9 | -42.06 | Gravita | 193.24 | 86.96 |
| Sea TV | -74.35 | -37.32 | Fineotex | 183.56 | 54.13 |
| Tirupati | -71.16 | -36.65 | C Madhindra | 115.36 | 190.35 |
| Aster | -71.15 | -37.78 | Mandhana | 88.54 | 95.53 |
| Cantabil | -67.93 | -71.32 | Talwalkar | 86.33 | 66.85 |
| In absolute terms | |||||
| Company | *(Rs cr) | In % | Company | *(Rs cr) | In % |
| TOP VALUE CREATORS |
TOP VALUE DESTROYERS | ||||
Market experts also say that while investors need to be cautious in the case of smaller IPOs, the regulator could also look at price-rigging in them more carefully. “The Securities and Exchange Board of India (Sebi) should investigate trading patterns in a majority of small IPOs,” said Deven Choksey, managing director of K R Choksey Shares and Securities.He said the sharp fall in IPO prices could be because of high operator activity.
Some of the operators that were named in an Intelligence Bureau scanner are Gujarat-based operators nicknamed 'Rangeela' and ‘Barter’, and Mumbai's 'NS'. These operators initially put a large retail dummy subscription. Once the stock is listed, they exit the stock in large chunks by selling above their cost of purchase.
And, the bad news for smaller IPOs seems to continue. Shilpi Cable Technologies is a case in point. After raising Rs 55.88 crore at the higher end of the price band and garnering a retail subscription of 5.74 times, the stock price of the company is trading at Rs 43.9, down 36 per cent from the issue price of Rs 69.
