IPO market booms as blockbuster listings draw investors to newly listed stocks | Mint

IPO market booms as blockbuster listings draw investors to newly listed stocks

In recent months, the number of IPO listings has surged remarkably.
In recent months, the number of IPO listings has surged remarkably.

Summary

Year-end review of the Indian IPO market in 2023 and cues to take into 2024.

It was a hushed start for the Indian primary markets in 2023. In the initial months, we saw a muted atmosphere, but as time unfolded, so did the narratives.

In recent months, the number of IPO listings has surged remarkably.

Comparing the current year's IPOs with the preceding year’s, the numbers tell a totally different story.

In 2022, 90 companies made their debut including both small and medium enterprise (SMEs) and mainboard segments. Fast forward to 2023, and we have 101 IPOs that are already listed, and we still have one month to go.

The journey started with 8 IPOs combined in January and February 2023. March marked a turning point with 11 IPOs as markets picked up pace. However, a dip followed in the months of April and May, with less than 7 IPOs each month.

From June 2023, demand resurged and has remained resilient till date.

What sets 2023 apart is that there were no blockbuster IPOs like the LIC IPO with an issue size of 210 billion (bn). In fact, 2023 had a quieter trend with focus on companies from the tier-2 cities.

To understand this better, let’s look at some numbers.

You see, till October 2023, 36 mainboard IPOs were listed. These IPOs collectively raised over 270 bn. Approximately half of these (18 IPOs), came from companies located in tier-2 cities like Yatra Online, Signature Global, Utkarsh Small Finance Bank, and Cyient DLM, among others.

Until October 2023, 36 mainboard IPOs went public, and together they raised more than 270 billion.

What's interesting is that 18 of these companies, like Yatra Online and Utkarsh Small Finance Bank, are from tier-2 cities. They gathered 106 billion, which is 40% of all the money raised by these 36 mainstream IPOs until October 2023.

Let’s look at 2023’s IPOs from a rear-view mirror, the best and the worst performing ones, and understand what lessons we learn from them which can be implemented in 2024.

Let’s begin.

 

Top IPOs with Gains on Listing Date

#1 Tata Tech Tops the List

The Tata Tech IPO tops the list as it made a stellar debut with a remarkable 140% premium, marking the best opening in the Indian mainboard market in the last two years.

The issue price of the IPO was 500 and upon listing, the stock began trading at 1,200.

This robust response is attributed to attractive valuations compared to industry peers and the strong brand reputation of Tata group.

Second, Tata Tech's FY23 PE ratio stands at 32-33x, which is significantly lower than its industry counterparts, with KPIT at 105x, L&T Technology Services at 40x, and Tata Elxsi at 70x.

#2 IdeaForge

In the drone sector, IdeaForge made the second big entry into the mainstream segment through its IPO. The company specialises in manufacturing unmanned aircraft systems (UAS), widely used across various sectors.

IdeaForge claims to be a market leader in the Indian UAS market with a market share of approximately 50%.

During its IPO, IdeaForge issued shares at 672, and upon listing on 7 July 2023, the stock opened at 1,295, marking a listing gain of 92%.

However, post its listing, the stock has been on a declining trajectory. As of 30 November 2023, the stock is trading at 782, reflecting a wealth erosion of 39% from its listing price.

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This decline can be attributed to a couple of factors.

First, the stock is perceived to be overvalued during its IPO. Additionally, the company is facing challenges in maintaining a robust balance sheet and has been consistently reporting declining revenue. These factors have contributed to the downward trend in the stock's performance.

The trend of hefty valuations impacting companies is not unique, we have seen such instances back in 2021 with startups like Paytm, PB Fintech, Zomato and Nykaa were listed.

A similar scenario was repeated with Honasa Consumer IPO, the parent company of Mama Earth.

When the company issued its draft red herring prospectus (DRHP) in December 2022, it faced criticism from market participants for its initial 240 bn valuation.

Subsequently, the final valuation at which the company launched its offering was reduced to 104 bn, less than half of the initial valuation. Additionally, the size of the issue was also trimmed.

On 7 November 2023, the stock got listed at a 4% premium to its issue price.

#3 Utkarsh Small Finance Bank

The third in the list is Utkarsh Small Finance Bank.

As a small finance bank, it has achieved the second-fastest growth in assets under management (AUM) from the financial year 2019 to 2022 among other SFBs with AUM exceeding 50 bn.

During its IPO, the bank had an issue price of 25. On 21 July 2023, the stock was listed at a 91% premium at 48. This premium listing was because of strong IPO subscription numbers and bullish market conditions.

However, as of 30 November 2023, the company is trading at 50, very close to its listing price.

#4 Gandhar Oil Refinery

The next in the list is the recent listing of Gandhar Oil Refinery. The company made a robust debut, opening at 298 per share, a premium of 76% over its issue price of 169.

This successful listing is attributed to factors such as strong subscription numbers, attractive valuation, robust financials, and growing overseas opportunities for the company.

The company's position as a leading manufacturer of white oils has increased its appeal among investors, contributing to its positive debut in the market.

#5 Cyient DLM

The last on this list is Cyient DLM. The company has positioned itself as one of the top performers for listing day gains in 2023.

Headquartered in Mysore, the company serves as a reliable partner in electronics and mechanical manufacturing. It is a supplier for major players in various industries such as Honeywell International, Thales Global Services S.A.S, ABB, Bharat Electronics, among others.

Cyient DLM operates within a contract manufacturing framework, placing a strong emphasis on quality and customisation to meet specific customer requirements.

The shares had an issue price of 265 and got listed at 420, reflecting a remarkable 59% gain.

As of 30 November 2023, the company's share price is trading at 651, showcasing an outstanding return of over 145% from its issue price.

The outstanding performance could be because the company has managed to thrive in a highly competitive environment within the electrical component business. The sustained success in such a competitive atmosphere is likely contributing to the positive momentum in its share price.

Similarly, from the 101 IPOs, 84 are trading at a premium to its issue price as on 2 December 2023.

Top IPOs with Losses on Listing Date

In 2023, most mainstream IPOs opened either flat or at a premium to their issue price. However, there was one exception.

Updater Services is one such example that opened at a 5.4% discount to its issue price. Market experts suggest that, fundamentally, the company was strong, but the public issue was aggressively priced, leading to a discounted listing.

 

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Yatra Online Limited also faced challenges as it got listed at a discount of 4.3%, and to date, it continues to trade at a discount.

The company's high PE valuation and heavy reliance on the airline ticketing business, coupled with the competitive nature of the travel industry, contributed to the dampened response to the IPO.

Now, finding the best and the worst performing IPOs just got easier. BSE has come up with a new section on their website where you can quickly track the performance of IPOs of the last five years.

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What we can Learn from the IPOs of 2023…

#1 Understanding valuations is a must

From IdeaForge to other overvalued IPO stories we saw this year, it just goes on to prove that be it renewable energy or some other hyped sector, it’s crucial to carefully check the underlying company’s true value, understand the risks and do a thorough competitor analysis.

Before investing, just go through a few sections in the red herring prospectus. It will help you analyse so much more about the business.

The sections we are talking about are:

⦁ About the company section, where you get to know about the business, industry structure, market opportunities and more.

⦁ Financial information section, where you get the audited reports of the last five years.

⦁ Object of the offer section, where you know where the accumulated money would be used.

⦁ Quantitative and qualitative disclose of the risk, where you get to know what risks the company sees for their business.

⦁ Legal and other information section, where the company mentions about all the unsettled lawsuits. Remember, companies facing critical legal challenges may pose a higher risk to investors.

Doing all of this is very important because it will help you find diamonds among the duds.

#2 Competition is real

Investors should check competition in the industry before investing in an IPO.

You see, competition is everywhere, be it for a well known company or a startup. Hence, winning projects can be tough for companies who do not have a competitive edge and this will affect profitability.

Second, in highly competitive sectors such as travel and food aggregators where competitive pricing is a key factor, investors should assess a company's market share in its sector and assess competitive edge before considering an investment.

As an investor, understanding the company's position relative to competitors is crucial in determining its ability to thrive in a market where pricing plays a significant role.

#3 The performance of an IPO depends a lot on the overall market sentiment

The success of an IPO is significantly influenced by the broader market sentiment.

When the overall market is positive and investors are optimistic, the new IPOs tend to perform well as there is a greater appetite for investment.

Lastly, think of IPOs as a long term investment and invest in it with the same mindset as you do for other stocks.

Happy investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com

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