The IPO scene may be abuzz with launches, but an investor must bank on fundamentals to decide.
Source: Tavaga Research
What IPO means?
Initial Public Offering (IPO) as the name suggests, is referred to as the very first sale of stock/shares to the public by a company. The company uses equity instruments for the purpose of raising capital to meet the business requirements.
A new Initial Public Offering (IPO) or an IPO plays an important role in the economy of India. A new IPO listing lets in new investors, hailing from the public, into the primary financial market, and encourages the distribution of information among all as the listed company disseminate mandatory knowledge about itself in the listing process. A new IPO also powers the listed enterprise with fresh capital at the optimum cost. A new IPO is a key step to creating fresh equity shares for trading in secondary markets. Overall, new IPOs help prop up the primary market even when there is volatility in the secondary market.
16 companies listed in 2020, were able to raise more than Rs. 26,000 crore. In 2019, 16 companies had listed, raising Rs 12,362 crore.
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What is IPO example?
New IPOs in 2021:
With the economy bouncing back and the beginning of a new year, three new IPOs are set to be launched in January 2021. Starting with Indian Railway Finance Corporation Limited to open on 18th January 2021, followed by Sequoia Capital backed Indigo Paints Limited on 20th January 2021 and Home First Finance Company India Limited on 21st January 2021.
Indian Railway Finance Corporation Limited’s Rs. 4,633 crore IPO is set to open on 18th January 2021 and would remain open till 20th January 2021. IRFC is a subsidiary of the Indian Railways. Its IPO consists of a fresh issue of 1,18,80,46,000 equity shares and an offer for sale by the government of 59,40,23,000 equity shares.
The price band for the same has been fixed between Rs. 25 to Rs. 26 per share at a face value of Rs. 10 per share and a minimum lot size of 575 equity shares. The purpose of the IPO is to increase its capital base and for general corporate purposes.
The revenues for IRFC grew at 21% CAGR from FY 2018 to FY 2020. Similarly, it’s profits have grown by 26% during the same time period. For the year ended March 2020, it’s profit after tax stood at Rs. 3,692 crore and as of September 2020, its AUM stood at Rs. 2.78 lakh crore.
Indigo Paints Ltd IPO will open for subscription on 20th January 2021. It consists of a fresh issue of Rs. 300 crore and Offer for Sale of 5,840,000 equity shares. Proceeds of this issue would be utilised to expand their manufacturing plant facility in Tamil Nadu, for the purchase of tinting machines & gyroshakers, prepayment / repayment of certain or all of its borrowings and for general corporate purposes.
Details to the issue can be found below:
Indigo Paints had a YoY revenue growth of 7.7% in FY 2020, with a gross margin standing at 14.6% and PAT of Rs. 47.82 crores.
IPOs of 2020:
Even in the current times, when the economy has slowed down due to the pandemic caused by Covid-19 and some other factors, new IPO listings by companies with good fundamentals are still finding favor with investors.
Mrs. Bectors Food IPO, the biscuit and bread manufacturer is one of the largest players in the premium and mid-premium biscuits in North India. It also is among the largest selling brand for premium bakery products in metros such as NRC, Mumbai and Bengaluru.
Additionally, the company supplies buns to well-known QSR chains such as McDonalds and Burger King. As of 30th June 2020, its biscuit segment has a total of 384 products, while the bakery business has a total of 96 items.
IPO opened for subscription yesterday and got fully subscribed in the first two hours of its opening. Here are the details about the ongoing IPO of Mrs Bectors Food:
So to answer the question of “What is the IPO price of Mrs Bectors Food IPO?”, the answer is “Mrs Bectors Food IPO Price band lies between Rs 286-288 per share”.
Burger King IPO, the quick-service restaurant (QSR) has grown impressively in India since it started operating in 2014. The company currently operates around 270 restaurants and plans to take that number to 700 by the end of 2026. The average ticket size at the restaurant is Rs 500-550, comparable to that of Dominoes and McDonald’s. Its revenue zoomed at a CAGR of 50 percent in the financial years 2018-2020.
However, FY21 has so far been a washout on account of the pandemic but the outlook for the company remains positive. The IPO was priced in the band of Rs 59-60 and was subscribed 156 times. The stock hit an upper circuit on the first two days of its listing on the 14th of December, rising 170 percent from the issue price of Rs 60.
Gland Pharma IPO, this Hyderabad-based company is one of the fastest-growing injectable-focused B2B players in the market, having a global footprint across 60 countries. It is a niche player in oncology, sterile injectable, and ophthalmic solutions. The company has seven manufacturing units in India, comprising of 3 API facilities and 4 formulation facilities.
The new IPO of Gland Pharma listed on the 20th of November 2020 and was subscribed 2.06 times. The public offer was opened for the subscription with a price band of Rs 1490-1500. Since its listing, the stock has climbed 48 percent till now.
Performance of Gland Pharma IPO since its listing date
Equitas Small Finance Bank IPO, the Chennai based small bank was the second largest small finance bank based on the assets under management and total deposits in fiscal 2019.
The IPO, which listed on the 2nd November 2020, had a price band of Rs 32-33 and was subscribed 1.95 times. Since the listing, the IPO has gained about 14 percent till now.
UTI Asset Management Company (AMC), the eighth-largest in terms of quarterly average assets under management (QAAUM) listed at a discount of Rs. 54 on the Bombay Stock Exchange (BSE). UTI AMC was the third AMC to get listed on India’s bourses after Nippon AMC and HDFC AMC.
The new IPO of UTI AMC was subscribed 2.31 times as it received bids for 6,31,02,348 shares against 2,73,50,957 shares on offer. While the issue price of the new IPO UTI AMC was Rs. 554 per share, it got listed at Rs 500 on the BSE.
Angel Broking, one of the oldest stockbroking houses in India that set up shop in 1996
listed on the markets on the 5th October 2020. The Angel Broking IPO was subscribed 4 times and made a tepid listing by getting listed at a discount, however, it has since gained around 16 percent.
The company provides broking, margin funding, financial services, and advisory through brands Angel Bee and Angel Broking powered by ARQ. Angel Broking has a strong market presence with active clientele on the NSE. It accounts for around 6.3 percent of the market share and operates 2.15 million operational broking accounts as of June 2020.
Mazagon Dock Shipbuilders, a state-owned public sector undertaking in the defense sector made a strong debut on the stock exchanges as the shares were listed at a premium of Rs 45. The new IPO of Mazgaon Dock Shipbuilders was subscribed 157.41 times as it received bids for 4,81,64,59,117 shares against 3,05,99,017 shares. The shares of Mazgaon Dock Shipbuilders were listed at the price of Rs 190 on the BSE against the issue price of Rs 145.
Likhita Infrastructure, a Hyderabad-based oil, and gas infrastructure provider had initially planned to launch its IPO from 29th September to 1st October 2020, however, with low participation of Qualified Institutional Buyers (QIBs) in subscribing to the IPO, it was further extended up to 7th October 2020. The company was successful in raising Rs 61 crore, as it intended to.
|Issue Terms:||UTI AMC||Mazagon Dock||Likhita Infra|
|Issue Price / Floor Price (Rs)||552-554||135-145||117-120|
|Application per Share (Rs)||554.00||145.00||120|
|Minimum bid (lot size)||27 shares||103 shares||125 shares|
|Minimum Investment Amount (Rs)||14,958.00||14,935.00||14,040.00|
Source: Tavaga Research
The new CAMS IPO (Computer Age Management Services IPO) that was open for subscription from 21st September to 23rd September 2020 was subscribed 47 times. It received bids for 60,19,36,188 shares against the offer of 1,28,27,370 shares. The new IPO of CAMS, too, made a strong debut on bourses. CAMS got listed on BSE at Rs 1,518, a premium of 23.4% over the issue price of Rs 1,230.
The recent and new IPO of Happiest Minds which got listed on 17th September was oversubscribed 151 times, and the shares were offered in the price range of Rs 165-166. The equity shares are now trading in the secondary market at around Rs 320 (as of 16th December 2020), multiplying investors’ earnings more than 2 times in a short period of 3 months.
Chemcon Specialty Chemicals IPO made a debut on 1st October 2020 and the public issue was subscribed 149 times. The shares have since gained 25 percent on the stock markets. Cchemcon is a leading manufacturer of Pharmaceutical chemicals and generates maximum revenue from this. The company also exports its products in overseas markets to China, US, Japan, etc.
Route Mobile, a cloud communication platform provider, which got listed on 21st September 2020 at a premium of 105% on the National Stock Exchange (Listing Price: Rs. 717), is now trading at Rs 1100 and the gains translate to a whopping 210% from the IPO price.
Rossari Biotech, a manufacturer of textile specialty chemicals that incorporated in 2009 made a debut on 23rd July 2020 and has until now appreciated by 92 percent. The issue was subscribed 79 times by the investors.
The company provides customized solutions to the FMCG industry, animal & poultry, and to the apparel industry, offering a diversified product portfolio. It operates in 18 countries including India, Vietnam, Bangladesh, etc. According to some reports, Rossari Biotech is the largest textile specialty chemical manufacturer in India. It offers 1948 different product range.
SBI Cards and Payment Services Ltd., which launched its IPO in the 1st week of March, did not perform as per the expectations because of the fear of pandemic due to COVID-19. However, it was successful in raising Rs. 10,340 crores as the issue was oversubscribed 26.54 times.
Performance of SBI Cards since the IPO
IPOs of 2019
The much talked about IRCTC IPO was listed in October 2019 and was oversubscribed 111 times. The IPO which demanded a price of Rs 315-320 was listed at Rs 644, delivering 2x returns on the same day. Today, the Indian railways subsidiary is trading at Rs. 1,410 and has turned out to be a multibagger stock by delivering returns more than 4 times within one year.
The performance of the stock not only surprised the investors but also the Indian Railways itself as it launched a protest against the merchant bankers for underpricing the IPO.
Other new IPOs in 2019 have done well too. Polycab India (electrical wire manufacturer), Chalet Hotels, Spandana Sphoorty Financial, and Rail Vikas Nigam (India Railways’ engineering arm) have seen their share price rise between 7 and 30 percent since their listing this year.
Affle, a social media tech company, and Metropolis Healthcare, the diagnostics chain, have had their equity share prices rise between 40 and 50 percent.
IndiaMART InterMESH, saw the highest rise of as much as 400 percent in share price since launch on BSE, while Neogen Chemicals saw a 179 percent increase.
Performance of IndiaMART since the IPO
Is IPO a Good Investment (For Retail Investors)?
Like most investment avenues, new IPOs should also be assessed by us for a fit. New IPOs are one way of investing in equity shares, the other being trading in them on the secondary market or the bourses. So, the earning potential of new IPOs can only be determined if we study the new IPO companies, which are issuing the equity, necessary knowledge for equity-share-related transactions. The operative metric would be the valuation at which the new IPO is being floated, which a fundamental analysis will reveal.
Whether the price band in which the IPO is being launched is reasonable or not is the question to ask ourselves.
Investment banks often act as the lead banker on a new IPO because new IPOs are a great way to let founders and early-stage investors, especially of young ventures, cash out their stakes in the enterprise. So, when an investment banker or the underwriter tries to create noise with phrases like ‘bright future’, ‘cheaply-priced’, ‘once-in-a-lifetime opportunity’ around a new IPO, retail investors like us should take it with a pinch of salt as they are just a part of the sales pitch. New IPOs after launch, may end up trading at prices lower than their initial price, shaving off value from our investment.
Savvy early-stage investors are here to ensure IPOs create as much din as possible to extract the most value out of their early bets, especially in the case of private enterprises floating new IPOs.
Gone are the days when companies had no other option but to tap the primary market for raising funds. An ecosystem comprising venture capitalists (VCs), big private equity (PE) players, and ultra-HNIs (high net-worth individuals) eager to invest in startups ensures that by the time companies hit the IPO market, they have seen their valuation multiply that gets reaped by the early investors.
What are the new IPO stocks?
Any company which wants to raise funds for its business can either go for borrowing or issue shares of the company. The second route leads to an IPO and creates new stocks of the just-listed company.
Equity shares or stocks represent the ownership of the company, and an IPO offers that to the public.
The IPO lets early-stage investors liquidate their stakes.
How IPO Works?
Companies that are going for an IPO ties up with an investment bank to help it sell its security. The investment bank then lines up the subscribers who will buy the security. Investment bankers call this process book-building as it tries to build a book of orders for the offering. Book-building may be done with a fixed price quoted or with a price band, which allows a final price to be set on the last day of the IPO, based on the bids.
Investment banks support book-building by providing investment information and research about the issuer to the public such as through a prospectus. The issuing company has to make a detailed disclosure of the business, the risks involved, and the intended use for the new fund.
Investment banks generally have two kinds of offerings:-
In an underwritten offering, the investment bank guarantees the sale of the issue at an offer price that it negotiates with the issuing company. If the issue is undersubscribed (ie. the number of shares on offer outnumber takers for them), the bank buys the shortfall at the issue price.
In a best-efforts offering, the investment bank acts only as a broker. If the offering is undersubscribed, the issuer will not sell as much as it hoped to sell.
In both of these offerings, the company together with the investment banks fix the issue price of the shares, after assessing the market conditions and the company valuation.
If the offering is undersubscribed, some number of shares on offer go unsold. If it is oversubscribed (ie. takers for the shares outnumber the volume of shares on offer), the securities are allocated to preferred clients or on a pro-rata basis.
The price of an equity share in an IPO is often finally determined during the period the IPO is open for subscription. Investors or subscribers advance bids or quote a price that is equal or more than the floor price set by the investment bank during the book-building process. The final price is fixed after the closing date of the IPO and the shares are then allotted.
Oversubscription is not always a sound indicator of an IPO’s suitability for an investor. The New India Assurance IPO is a case in point. It raised the sum the company aimed for (a neat Rs 9,600 crore) but was not so beneficial for the IPO subscribers.
Listed in 2017, the IPO issue was oversubscribed by 1.07 times. Experts say it was a result of the investment banks and underwriters’ enthusiastic marketing and roadshows that led to it. But when the stock hit the bourses, it started being traded below the Rs-350-a-share issue price and has since fallen to being traded at Rs 130 a share. Overvaluation of the general insurance company’s worth is said to be the cause of its downfall, erasing investors’ wealth.
A study in contrast is the stellar launch of the IRCTC issue. The catering and tourism subsidiary of the Indian Railways, raised around Rs 645 crore, with shares priced at Rs 320. Not only did it get oversubscribed by almost 112 times, on its market debut in October, it got listed at Rs 644, doubling the wealth of its IPO subscribers in a day.
Upcoming IPOs of 2020-21:
If we have missed the IPO bus so far, we have other upcoming IPOs to look forward to. New IPO 2021 or the IPOs lined up for the next financial year include the National Stock Exchange (NSE) itself, India’s largest by way of volume.
Other financial markets related IPOs of 2021 include the LIC, National Insurance Company, and AnandRathi Wealth Management. Another sector keen on launching new IPOs seem to be FMCG (fast-moving goods), and food and beverages (F&B) within it.
Food brands such as Anmol Industries (of Anmol biscuits fame), restaurant chain Barbeque Nation Hospitality, and Punjab Grill-owner and restaurant chain, Lite Bite Foods (promoted by Dabur Vice-chairman Amit Burman) are gearing up with their IPOs for 2021.
Other consumer-facing companies include Flair Writing (Flair pens) and Patanjali Ayurved (Homecare and personal care FMCG). Aakash Education services and Senco Gold also have large consumer-facing segments of the business.
Of course, heavy industry companies in metal fittings, pesticides, and energy are also biding their time to float their IPOs next year.
Following is the list of tentative new upcoming IPOs in India that are scheduled for a 2021-launch:-
|Issuer Company||Price Band (Rs.)||Issue Date|
|HDB Financial Services Ltd||NA||2021|
|Indian Railway Finance IPO||NA||2021|
|Kalyan Jewellers IPO||NA||2021|
|Bajaj Energy IPO||NA||2021|
|National Stock Exchange IPO||NA||2021|
|Montecarlo Limited IPO||NA||2021|
Source: Top 10 Stock Brokers, Tavaga Research
IPO Launch Date
If we find ourselves asking, “How do I find a company’s IPO date?” it might be a little unsettling to know that there is no one-stop solution.
News of filing of red herring prospectus by popular or promising companies gets reported in the business media. Sebi, NSE, and BSE websites all have pages dedicated to companies that have initiated the process. These sources adequately answer, “How do I find new IPO stocks?” Tentative launches are new IPO stocks as once launched they move to the secondary markets for trading.
But the date of the IPO launch is not set in stone. Depending on the economic environment and investor sentiments, companies may defer the actual issue by months after the prospectus filing. Sebi allows companies to launch an IPO anytime within one year of filing their DRHP. Even the list mentioned above of IPOs 2021 is not a guaranteed list as the enterprises may change their mind and defer the launch. NSE itself has been deferring its IPO for some time now.
A company’s IPO launch date can only be found by following the news and of course, from brokers. On the day of the launch, the bourses’ websites will have the company listed on their IPO watchlist with the pricing details and the status (live or not).
A hack that could be useful is to set up a Google alert with the keywords of the company’s name and ‘IPO’ after we choose which ones to watch out for from the list of filed DRHPs. Updates may be set for frequencies ranging from daily, weekly, monthly, and so on.
IPO Allotment Status
After bidding for an IPO issue closes, allotment begins. Bidders can check their status of receiving shares with the registrar to the offer. It also reflects in the demat accounts.
How to check allotment status for IPO?
- To check the status on the BSE website, check the equity box and enter the required details such as application no., PAN, and issue name
- To check the status on the registrar’s website, enter either PAN/application no./DP client ID
Allotment in the case of oversubscription is based on different quotas, which are:
Retail individual investor: It means an investor who bids for the security for a value of not more than Rs 2,00,000. Not less than 35 percent of the net offer is to be made available to such investors in case the company makes an issue of 100 percent of the net offer to the public via a voluntary book-building process. The allotment ratios change if it is a compulsory book-building or a fixed-price issue.
Qualified institutional buyer: It includes a broad spectrum of investment funds such as MFs, pension, and provident funds, insurance funds, foreign institutional investors, financial institutions, etc, all defined by Sebi. Not more than 50 percent of the net offer is to be made available to such investors in case the company makes an issue of 100 percent of the net offer to the public via a voluntary book-building process.
Non-institutional buyer: An investor which does not qualify as a retail or a QIB. Not less than 15 percent of the net offer is to be made available to such investors in case the company makes an issue of 100 percent of the net offer to the public via a voluntary book-building process.
When retail investors like us subscribe to an IPO, we may bid for not more than Rs 2,00,000 worth of shares then. However, the fundamental analysis of the issuer cannot be ignored as it will tell us whether the pricing has been done right or not. Overenthusiastic underwriters can mislead the public with a media blitzkrieg but an accurate estimate of valuation won’t.