Flush of IPOs to hit the makret

84 and still counting...

No, it’s not the number of runs scored by master blaster Sachin Tendulkar while chasing a ton, which is getting increasingly illusive for him these days; nor are we referring to the age of the evergreen film star, Dev Anand. It’s the number of companies that were listed on the bourses in calendar year (CY) ’07 till October 18. It easily surpasses the 78 new listings in CY06 and is expected to get even bigger as a few more IPOs will hit the market in the remaining period of the current year.

The surge in new listings in the current year gives an idea of the increased tempo in the primary equity market following the bull run.

The number of listed companies in the first 10 months of the current year and their cumulative issue size is the largest since ’01.

Given the enthusiasm with which companies are approaching the equity market, it is imperative to understand whether it is really profitable to take the IPO route of investment. ETIG studied the returns scorecard of the IPOs in CY07 so far and found that they give a worthy investment option to retail investors, provided the investment is made wisely considering the fundamentals of the companies.

In the past 10 months, companies have raised nearly Rs 32,000 crore from investors — 63% more than the total amount raised by companies in ’06. When it comes to listing gains (the difference between the listing price and offer price in percentage terms), investors made money in 51 out of 84 instances. These returns varied widely from as low as 3% to as high as 242% over the offer price. Out of the total IPOs, listing gains in 28 outpaced the Sensex return of 34.6% between January 2 and October 23.

All this sounds convincing enough, but are these returns sustainable over a period of time? We looked at the returns earned by these newly listed companies till date (October 23). Based on this parameter, nearly two out of every three companies listed in the current year have earned positive returns (difference between the price as on October 23 and offer price in percentage terms). The extent of return varied from 0.5% to 424%. Further, 29 IPOs out of total 84 were able to beat the Sensex returns.

In fact, 37 scrips have improved their returns since the day of listing. We considered only those stocks that are trading for more than a month (three stocks listed after September 20 were not considered). It shows that there is a fair chance for valuations to improve post-listing.

Financial performance of the companies post-listing and market anticipation of their future growth prospects play a major role in determining the post-listing returns. In our sample, 18 companies reported quarter-on-quarter growth in income and profits during the subsequent quarter after the listing date. Out of this, as many as 10 companies witnessed a jump in their share prices after listing. Some of the companies in this category include Tanla Solutions, Indian Bank, Power Finance Corporation, Idea Cellular and Ankit Metals.


Among all companies that were listed on the bourses till October 18, ’07, Orbit Corporation posted the highest post-listing gains of 424.8%. The stock was offered at Rs 110 per share, opened low at Rs 90 on its debut in April ’07 and is now trading at Rs 598. Everonn Systems, an educational information dissemination company, has seen a four-fold rise in its share price since its listing in early August. MIC Electronics, Global Broadcast News and Redington are some other companies that have reported multi-fold gains in their share prices.

However, the analysis will be incomplete without a special mention of companies from lesser-known or unconventional sectors such as floriculture, fire-protection, ceramics and granite and marbles. Companies in this bracket include Pochiraju Industries, Nitin Fire Protection and Euro Ceramics among others.

A majority of companies in these unconventional sectors have failed to excite the market. All the four granite and marble companies listed in the current year failed to provide listing gains, while only Euro Ceramics was able to provide returns of 21% so far. Flower exporter Pochiraju saw initial excitement from the investors as it gained 35% on listing. However, the stock is currently trading below its offer price. The only exceptions are Nitin Fire Protection and Everonn Systems.

Our study suggests that IPOs offer an effective way to include tomorrow’s performers in your portfolio today. However, such a decision needs to be supported by a clear understanding of the business profile and underlying risks for the listing company.