Top 10 IPO Wealth Destructors

Most of the companies who have tapped the market to raise funds through the initial public offering (IPO) route in the last one year have faced serious headwinds. The share prices of most of these companies have taken a huge beating on the bourses. Also, some of the companies have had to withdraw their IPOs in the wake of poor response from investors. This has been due to volatile market conditions that have kept investors away from the markets. And despite the bad market conditions, those investors who courageously subscribed to the IPOs have burnt their fingers in this free falling market.

But only cursing the broader environment and market conditions is just not the right way to look at the scenario. One has also to look at factors like some of these companies’ very aggressive price bands which resulted in very high valuations coupled with poor business growth, thus giving more downside to the scrips. This time DSIJ has put together a list of the top 10 IPO losers in the last one year that can aptly be titled as ‘Top 10 IPO Wealth Destructors’. Further, five of these 10 companies are now banned by the SEBI after they were found violating the IPO norms. We at DSIJ would also like to take some of the credit for having given an ‘avoid’ rating to as many as eight of these ten companies at the time of the IPO. Our advice to all our readers would be to look closely at the business of a company, its fund-raising objectives and its peer group’s performance before investing in any IPO.

1. Taksheel Solution Ltd.

Taksheel Solution, a software development company, catering to the telecom sector tapped the market in September 2011 by issuing shares of Rs 150 to raise Rs 82.50 crore. The stock price from the listing day has fallen by almost 92 per cent and is currently trading at Rs 11. DSIJ at the time of the IPO had strictly advised investors to avoid it on account of corporate governance issues and concerns about the management bandwidth. Later, the SEBI too came up with its investigation report and highlighted the misuse of funds.

2. Bharatiya Global Infomedia

Bhartiya Global Infomedia is a Delhi-based software development company that came up with its IPO in July 2012 to raise Rs 55 crore. On the listing day the scrip opened at Rs 82 and from there onwards has fallen down by almost 92.01 per cent, currently trading at Rs 6.55. The company, as per the SEBI’s investigation report, was allegedly found misusing the IPO funds along with non-disclosure of critical information in the DRHP, etc. BGIL is a product-based IT company primarily into creating software products and applications for safety, security, automation and various web-based applications.

3. Tijaria Polypipes

Tijaria Polypipes manufactures pre-lubricated HDPE pipes, PVC & SWR pipes, flat tubes and PET straps. The company tapped the market in September 2011 to raise Rs 60 crore. On the listing day the scrip opened at Rs 60 and has fallen by 87.88 per cent till date, currently trading at Rs 7.27.  DSIJ at the time of the IPO had strictly advised investors to avoid the scrip due to us not being convinced about the company’s objectives and its valuations. Moreover, there were some issues with the company as the SEBI on the first day of listing received complaints with regard to alleged insider trading that was causing huge losses to retail investors. Later, the SEBI investigated and came across many other corporate governance issues.

4. Indo Thai Securities

Indo Thai Securities (ITSL), a broking firm, tapped the market in February 2012 to raise funds of around Rs 33 crore through the IPO route. The offer price of the company was fixed at Rs 74 per share and it listed marginally higher at Rs 75, following which it began on downward spiral. At present it is trading at Rs 10 per share, which is at 86 per cent discount to its offer price. We at DSIJ had given an ‘avoid’ rating to the IPO. This was on the back of subdued business growth for the company coupled with higher valuation (with a P/E of around 79).

5. RDB Rasayans

RDB Rasayans tapped the market in September 2011 by issuing shares at Rs 79 each. It is presently trading at Rs 11, resulting in a discount of almost 86 per cent. The company has also hit a 52-week low of Rs 6.70 per share. It is a very small player in the packing business but tapped the market with a very high valuation (P/E of around 70) and that has led to its downfall. We at DSIJ had given an ‘avoid’ rating to the IPO. It is also one of the companies that the SEBI investigated for alleged irregularities in the IPO issue.

6. Brook’s Laboratories

Brooks’s Laboratories, a pharmaceutical CRAMs company, came with an IPO in August 2011. The main objective was to obtain fundsd to set up a new facility in Gujarat. The company garnered Rs 30.40 crore through this IPO but the stock has crashed by 85 per cent from its listing day. The SEBI alleged that the funds raised through the IPO were used by Brook’s Laboratories to repay some of its inter-corporate deposits. Besides, it was also accused of ignoring the recommendations made by its technical team to import the machinery. SEBI also found that the company had transferred some portion of the IPO proceeds to its entities in the stock broking business. No wonder that its price has crashed.

7. Birla Pacific Medspa

A Yash Birla Group company, Birla Pacific Medspa came out with an IPO in June 2011. The company offers comprehensive treatments in the areas of dermatology, cosmetic surgery and advanced dentistry. It was an IPO of Rs 65 crore and received Grade 2, indicating average fundamentals. The price band was kept at Rs 10-11. At that price the valuation of the company was steep at its EV/sales multiple of 26x. The objectives behind the IPO were to establish 55 new outlets of its med spa centers named ‘Evolve Medspa’, promote the brand name and use the money for its working capital needs. The IPO was fully subscribed and also surged by over 200 per cent on the day of listing. In the last one year, however, the shares have declined by 50 per cent from its issue price. For the year FY12 the company posted loss of Rs 1.5 crore.

8. SRS Ltd.

SRS tapped the market in August 2012 to raise funds of around Rs 220 crore for its expansion plans. The offer price of the company was fixed at Rs 58 per share, which after listing went up to Rs 61.4 per share. However, after that it moved only in one direction i.e. southwards. At present it is trading at a discount of almost 35 per cent at Rs 37.65 and its 52-week low is as much as Rs 26.1 per share. We at DSIJ had been of the opinion that the company’s fair value should have been about Rs 25 and hence had given this one the ‘avoid’ tag.

9. M&B Switchgears

M&B Switchgears, which is in the business of production and distribution of different transformers, came out with an IPO in September 2011. The prime objective of the IPO was to enter into the business of power generation by setting up a 2 MW solar power plant at Gagorni, Rajasthan. We had clearly asked our readers to avoid this IPO. The offer price was between Rs 180-186. The issue got listed at the price of Rs 176. From that time onwards the scrip has lost 32 per cent. For the recent year the company has shown almost flat sales. With the outlook for the power sector capital goods companies remaining very weak, we still hold our call to avoid the scrip.

10. Prakash Constrowell

Prakash Constrowell tapped the market in September 2012 to raise funds of around Rs 60 crore to be used for its working capital requirement, construction equipment, etc. The company is into the business of infrastructure and civil construction. The offer price of the company was Rs 138 per share and at present it is trading in double digits i.e. Rs 99 per share, resulting in a discount of almost 28 per cent from the offer price. We at DSIJ had given an ‘avoid rating to the IPO’ on the back of higher valuation.

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