Listing Lessons

With the secondary markets witnessing an up-move (up 25 per cent in CY12), the primary market, which was quite dormant for some time, has also come to life again. As the leading equity indices moved upwards, the number of companies tapping the primary market has gone up steadily. This is what normally happens when the times are good.

There was a time when investors made a killing by investing in IPOs which came in floods to take the advantage of a rising market. However, the scenario has changed, and over the years, the returns on IPOs have moderated considerably. In some cases, investors have seen their wealth get eroded significantly after having invested in IPOs. As a result, the frenzy over investing in IPOs has subsided considerably.

Recently, three major companies, viz. PC Jeweller, Bharti Infratel and CARE raised money through the IPO route and got listed on the bourses. Here is what they have been doing on the bourses after being listed.

PC Jeweller

PC Jeweller tapped the primary market to raise Rs 609.30 crore in the month of December 2012. The price band at which the company raised money was between Rs 125-135 per share. The issue was priced well, with something left on the table for investors. It got oversubscribed by 6.86x and the final issue price was fixed at Rs 135 per share. However, one has to remember that the issue got oversubscribed only on the last day – a trend which is being seen for quite some time now. Another noteworthy factor is it was the demand from Qualified Institutional Buyers (QIBs) and Non Institutional Investors (NIIs) that helped the issue to go through well.

On December 27, 2012, the scrip got listed at a premium and closed the day at Rs 149, providing gains of 10.37 per cent on the listing day. The scrip is now trading at Rs 178 and is still providing returns of more than 32 per cent on the subscription rates.

In our analysis (posted on www.DSIJ.in on December 5, 2012), we had recommended a ‘buy’ on the IPO from a long-term perspective. We stand by our stance and recommend that investors with a longer horizon can continue to hold the scrip. Though there was some news of the government levying additional duties on gold imports, this company will hardly get impacted as it has already imported gold and will get a price benefit according to the prevailing rates. Hence, holding the scrip seems to be a prudent strategy.

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CARE

In a scenario where most of the other issues were actually witnessing a dull response, the CARE IPO was oversubscribed by 41x. While the NII portion got oversubscribed by 111x, the QIB portion was next with a 46x oversubscription. Even the retail portion was oversubscribed by 6x.

The offer price was in the range of Rs 700-750, and on account of a magnificent response from all the segments, the issue price was set at the higher end of the price band at Rs 750.

We had recommended in our analysis of the IPO (posted on www.DSIJ.in on December 7, 2012), that investors should invest in this counter considering that there was much value in store for them even at the higher price band. On 26th December, 2012, CARE got listed on the bourses at a premium of 23 per cent. The scrip is still trading at Rs 928 and providing good returns. However, with all fundamentals being in place, we recommend that you hold on to the scrip from a long-term investment perspective.

Bharti Infratel

Ever since the day it filed its DRHP, Bharti Infratel has been in the news – be it on account of the delayed tapping of the primary market after filling the DRHP, or being India's largest IPO in two years, or for that matter, even due to the higher valuation it asked for. 

The company hit the headlines even when the issue opened up for subscription. This was following the poor response from the NII and retail segment, which got subscribed only 0.29x and 0.19x respectively. It was the QIB subscription that proved to be a face saver for the company. This segment was oversubscribed by 2.84x, taking the overall subscription to 1.30x. With such a mute response to its issue, the issue price settled at Rs 220 (offer price of Rs 210-240).

In our analysis of the issue (posted on www.DSIJ.in on December 3, 2012), we had categorically stated that investors with a high risk appetite and a long-term investment horizon should invest in this scrip. We had also added that investors need to be cautious before jumping into the ship looking for short-term gains from Bharti Infratel. The opening of the scrip on the bourses was quite dull. The shares of the company opened a 10 per cent discount of around and then settled at Rs 191.

We still stand by our stance of the long-term story in the counter and recommend that investors hold it at the current levels. In a recent development, FTSE reported that Bharti Infratel would be added to the FTSE Large Cap Index with effect from January 7, 2013. The stock will also be added to the FTSE All-Emerging Index, according to the FTSE website. We feel that this provides some solace to investors, as well as an additional reason to back our long-term expectations on the company. In fact, the scrip has actually witnessed a up-move since then, and is now trading at Rs 205.

These details clearly indicate that there is no dearth of investors if companies offer their issues at fair valuations. The CARE and PC Jeweller offers clearly vindicate our stand on this matter.