IPOs: The Bigger They Are, the Harder They Fall
- Do big IPOs really create big wealth for investors? Let’s look back at the 10 largest IPOs of our time to find out
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“Bigger doesn’t necessarily mean better. Sunflowers aren’t better than violets" - Edna Ferber
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Ever since we are born, we are made to believe that ‘Bigger is Better’.
And we carry this old saying with us into multiple facets of life including the world of investing. We seem to instinctively believe that a bigger company or a bigger fund will provide better returns.
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As an investor, it’s easy to get confused at first, especially with the ongoing flurry of IPOs. And, when you’re raised to think big, you would immediately think of applying for the largest initial public offerings.It probably comes from the idea that bigger seems to be safer.
The Life Insurance Corporation of India (LIC) just concluded its IPO on Monday. It created a record for the highest number of applications crossing over 6 million. Retail investors flocked to the offering like never before. Interestingly, the record for highest number of applications was held by the IPO of Reliance Power (the largest IPO at the time). It had received 4.8 million applications almost fourteen years ago.
But is bigger actually better? To answer that, we decided to look back at the ten largest IPOs of all time and came away surprised. Read on…
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#1. Cairn India Ltd
The ₹8,616 crore IPO ran between 11 December and 15 December, 2006. It received a muted response from investors.
The IPO had failed to attract enough non-institutional and retail individual investors. The issue got subscribed 1.14 times, thanks mainly to buying by institutional investors. The Indian arm of British oil and gas companyCairn Energymade an unassuming debut. The stock listed at a 12% discount to the issue price of ₹160 and eventually closed down 14% at ₹137.50.
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The company was eventually merged with its debt-ridden parent Vedanta in 2017 and the stock was delisted. The closing price on the last day of trading was recorded at ₹285.40 on BSE.
#2. HDFC Life Insurance Co Ltd
The ₹8,695-crore initial public offering (IPO) of HDFC Life Insurance was sold in the price band of ₹275-290 in November 2017. It was subscribed 4.8 times.
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It listed on the exchange at a premium of 7% at ₹311.
Currently, the stock is trading at ₹564 i.e., a CAGR of 13% over the last 5 years.
#3. DLF Ltd
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Although the DLF IPO was subscribed 3.47 times, subscription in the retail investors category was at only 0.98 times.
The stock listed at a premium of over 8% on listing and over the next few months zoomed to as high as ₹1,205.
However, since then the stock saw an erosion of over 90% of its market value crashing to as low as ₹80 in 2016. At the current price of ₹318, it is still trading at a discount of 39.43% to its issue price over 15 years ago. This makes it one of the biggest wealth destroyers for investors.
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#4. Zomato Ltd
India's leading food delivery companyZomatomade a stellar debut on Dalal Street in July 2021. The stock opened at Rs116, a52.63% premium to its offer price of ₹76.
However, Zomato has not only been burning cash for its growth but has actually burnt investors' money since the beginning of the year. Shareholders of the company have turned poorer by ₹90,449 crore following a 68% crash in the stock from the all-time peak.
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#5. The New India Assurance Co Ltd
The ₹9,600-crore IPO of New India Assurance had got a lukewarm response from investors at the time of its offering in 2017.
Shares meant for retail and high net worth individuals (HNIs) in the IPO were undersubscribed.
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The IPO scraped through with institutional support and was subscribed 1.19 times on the last day of the issue. LIC bid for ₹6,500 crore worth of shares in the IPO.
The stock listed at a discount of ₹50 or 6.25% on the exchanges and within a year was down over 50%.
Currently the stock is trading at ₹104, having eroded over 71% of investors capital had one invested in the public issue.
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#6. SBI Cards & Payment Services Ltd
The stock of SBI Cards & Payment Services saw a weak debut listing at ₹658, 12.85% below its issue price of ₹755. It eventually closed at ₹683 on the BSE.
The IPO had managed to attract bids worth ₹2 trillion generating close to 2.7 billion bids (26 times).
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The market had anticipated a 35% premium on listing for the mega issue due to the scrip’s high demand in the unlisted market.
The grey market premium for the stock stood at ₹350. The listing was a big blow for HNI investors, who had borrowed money to bet on the issue.
The stock had made gains last year peaking at ₹1,141 per share but has since fallen over 37% to settle back at below its issue price of March 2020, resulting in no gains for investors over the last two years.
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#7. General Insurance Corporation of India Ltd
Continuing the trend of weak post-listing performance among insurance companies, shares of General Insurance Corporation of India dropped 6% over its issue price on its trading debut in October 2017.
The tepid start came after the reinsurer’sIPO was subscribed 1.37 timeson the final day of the issue thanks to support once again from state-run Life Insurance Corporation. HNIs and retail investors largely stayed away from the IPO.
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As seen with other PSU IPOs in recent years, sadly GIC has disappointed investors with the current price over 73% below its issue price.
#8. Reliance Power Ltd
Reliance Power Ltd listed on 11 February, 2008 after the company had mopped up a record ₹11,563 crore in its initial public offering (IPO). The buzz surrounding the issue among investors had been growing with grey market premiums for the shares as high as 80% over issue price setting the stage for a phenomenal opening.
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The IPO was oversubscribed approximately 70 times attracting over 5 million bids from all categories of domestic and international investors.
The stock debuted at a premium of 21% over its issue price, but within minutes after that, the stock crashed and eventually settled the day down by 17% from the issue price.
The company filed a complaint with market regulator SEBI for investigating a campaign against it. It even announced free bonus shares to all categories of shareholders, except the promoter group.
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Unfortunately, none of the company’s actions would help investors recover their money as the stock never again touched its listing price.
The stock holds the unenvied title of the worst performing IPO on our list having lost over 95% of its value over its issue price.
#9. Coal India Ltd
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In 2010, Coal India raised ₹15,475 crore in what was India’s biggest initial public offering of shares at the time.
And for investors, it was a welcome Diwali gift. The stock debuted at 17% over its issue price of ₹245 and zoomed to close at ₹342.35, 28.44% higher than the offer price.
Although the stock was a star performer for short term investors, it failed to deliver returns for long term investors who have held on since.
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In recent times the company has underperformed the broader markets and the stock is currently trading at ₹170.
#10. One 97 Communications Ltd (Paytm)
Paytm’s ₹18,300 crore IPO was the largest ever issue on Dalal Street before the recently concluded LIC issue.
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It eroded investors wealth by over ₹35,000 crore in the first few hours of its market debut on 18 November 2021. The stock opened for trading atRs1,950 on the NSE, marking a decline of 9.3% from its issue price ofRs2,150. At the close of trading, the stock ended 27% lower at ₹1,560.
And it’s got much worse since then.
Paytm’s market value which was over ₹1.39 lakh cr at the issue price has declined by 75.30%. It is currently at ₹33,566 cr.
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Does it Make Sense to Invest in Large Sized IPOs?
Looking back at the track record of the ten largest IPOs before LIC, we see that eight of the ten have eroded wealth for its shareholders.
An IPO can be a confusing topic for many investors. As a prospective shareholder, subscribing to an issue when a company goes public might seem like an easy way to get in early.
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When well-known and popular brands decide to go public, the media hype around the IPO can often intrigue individual investors.
Investors must keep in mind that newly public companies lack a proven record of operating in the public domain. The secondary market is always the best place to decide what the price should be. The primary market is skewed. It is a place where there are only one or two sellers and too many buyers. This may result in illogical price discovery.
In 2021, 63 companies listed on the exchanges including many big-ticket IPOs like Paytm, Nykaa, and Zomato.
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Among these 63 companies, only 15 offered multibagger returns of up to 300% to investors.
Interestingly, 11 of these were small-sized IPOs of ₹100-600 crore.
Clearly, big IPOs have failed to deliver over the years.
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India’s biggest ever IPO, LIC is set to open for trading tomorrow, on 17 May.
As investors wait with bated breath and fingers crossed, the question on everyone’s mind is, Will LIC be an exception?
Disclaimer:This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
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(This article is syndicated from Equitymaster.com)
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