BUSINESS
Of the 188 issues that hit the market since 2007, nearly two-thirds (118 to be precise) are trading below their issue price.
A boom, a bust and a recovery later, a majority of initial public offerings (IPOs) launched over the past three years are struggling below their issue price. Of the 188 issues that hit the market since 2007, nearly two-thirds (118 to be precise) are trading below their issue price.
While 2007 was a boom year, 2008 and the early part of 2009 saw massive falls in equity valuations. The recovery since then doesn’t seem to have done enough to help the valuations of these IPOs.
Even conservative investors would have got higher returns. Investing in a fixed deposit at 8% would have given returns of 25.97% before taxes over three years. Only 51 of the 188 issues have given higher returns. In fact, 11 companies have lost over 80% since they listed.
Experts suggest that the high valuations associated with the tail-end of a bull-market and on hopes of a new bull-market are the primary reasons for the lacklustre performance of the offers.
Nagendra Bhatnagar, MD & CEO at IDBI Capital Market Services, said, the global financial crisis dashed many companies’ IPO hopes.
“Companies launched IPOs when the Sensex was near all-time highs, hoping to ride the bull run. However, the financial crisis pulled the market down, and many stocks have fallen below their issue price,” he said. Abhay Bhalerao, director, Equirus Capital, said the poor showing of IPOs reflects the state of the broader market. “The performance of the companies that went for IPOs depends on the broader market conditions and the earnings of the companies”.
Of the 188 issues, Dhanus Technologies was the worst-performing — its share price is currently down 94.2% from the issue price. Pyramid Saimira Theatre and House of Pearl Fashions have done marginally better, still down 89.8% and 87.0%, respectively.
This is not to say that there have not been spectacular winners. Shree Ashtavinayak Cine Vision has been the top gainer. Its share prices have gained 275.3% since its launch in October 2007. It is followed by Kiri Dyes & Chemicals and Redington (India), which are up by 272.9% and 242.1%, respectively.
Prithvi Haldea, CEO, Prime Database, said the poor showing of some IPOs does not necessarily mean that they were overpriced.
“Whether or not they are overpriced would be determined by investor demand. Companies could also underperform due to problems affecting the sector or the business of the organisation,” he added.
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