Lack Of Appreciation Seen In A Majority Of Ipos

Share prices of companies that floated initial public offers (IPOs) have moved with the general market sentiment. Scrips of as many as 399 of the 555 IPOs listed on the Bombay Stock Exchange (BSE) traded below their issue price between the day of listing and December 24, 1996. This shows that the investment made in 72 per cent of the IPOs has depreciated after the listing.

The market capitalisation of the IPOs declined by 10.6 per cent to Rs 5393.1 crore on December 24 from Rs 6,035 crore based on their issue price. The market cap of these companies on listing touched Rs 7,438 crore, showing an gain of about 23 per cent over the issue price.

 

This means short sighted investors who managed to sell shares immediately after listing did not have to repent for their slipshod decisions. Results show that the market price of 305 companies were above the issue price on the day of listing and for 205 firms it was below the issue price. Forty five of the firms got listed at around the issue price.

Of the 555 issues listed during 1996 (Jan-Dec), 475 IPOs were issued at par, while 80 issues were offered at a premium ranging between Rs 1 and Rs 165. The results show that investment made in issues at par or with a premium met the same fate. Of the 475 par issues, the shares of 345 companies are now quoting below par, 16 of them at par and 114 above par.

Of the 80 premium issues, 55 are quoting below the issue price, five at around the issue price and 20 well above the issue price. The issue price of 70 firms ranged between Rs 11 and Rs 50. For seven companies it was between Rs 50 and Rs 100 while for three firms it was above Rs 100.

Among the high premium issues, the current market price of Tamil Nadu Newsprint at Rs 74 is well below the issue price of Rs 110. Khandwala Securities which issued shares at Rs 120 shed Rs 14.25 immediately after the listing.

The price could not sustain even at that level and declined further to Rs 90, showing a net loss of Rs 30 per share over the issue price.

Marico Industries which issued shares at Rs 175 managed to float at around Rs 240 after touching an all-time high of Rs 335 soon after listing on the Bombay Stock Exchange.

The analysis show that all IPOs were not bad. The current market price of 43 companies show a gain of over 100 per cent over the issue price, while for 18 firms the rise was over 50 per cent. For example, Sangam Processors, which issued shares at Rs 30 is now trading at Rs 166.75. A par issue of Mazda Fabric appreciated to Rs 110.75.

However, investment made in Kalyani Seamless has depreciated by over 70 per cent. The market value of Tamil Nadu Newsprint declined 33 per cent, Zen Global Finance 70 per cent, Mercury Capital fell by over 80 per cent and Auto Pins (India) 40 per cent.

Investment made in these IPOs after listing was fruitful in many cases. Mangalya Exports shot up by over 700 per cent to Rs 101.90 from the listing price of Rs 12, followed by Mazda Fabric which rose 677 per cent, Monnet Industries 402 per cent, Sangam Processors 376 per cent, Maars Software 368 per cent, Eider Telecom 309 per cent, Madhur Housing Finance 308 per cent and Vertex Machinery 305 per cent.

IPOs that were a nightmare for investors included Fairyland Amusement which declined 98 per cent followed by SSP Polymer 96 per cent, Shubham Granite 96 per cent, Rich Gold Fin 95 per cent, Mehta Caplease 95 per cent, Natural Biocon 95 per cent, Naisargik Agritech 94 per cent, Ratan Steels 94 per cent, Moon Drugs 94 per cent and Kotwala Securities 93 per cent.