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Numbers that take sheen off IPOs

Around a third of the companies that listed in the last couple of years are trading at significant discounts to their offer prices, reports Arun Kumar.

business Updated: Feb 25, 2008 02:16 IST
Arun Kumar

Contrary to perception that investment in initial public offers is relatively safe, around a third of the companies that listed in the last couple of years are trading at significant discounts to their offer prices.

Since 2006, around 150 companies have entered the capital market to raise a mind-boggling Rs 50,000 crore. In 2007, 85 companies raised over Rs 22,000 crore through IPOs. Around 37 are now trading at discounts ranging from 1 to 68 per cent. In fact, nearly 10 companies are trading at less than 50 per cent of their offer prices and another 18 are at discounts between 30 and 80 per cent.

Of the 68 companies that entered the market in 2006, 10 are trading at less than half their offer prices and five at 40 per cent discount. Even after holding these stocks for over a year, investors in these companies have lost.

However, at the same time, 20 companies that listed in 2006 have given returns between 100 and 500 per cent. Another 17 companies have returned between 20 and 80 per cent. Likewise for companies that listed in 2007; investors would have made a killing in 15 cases, where returns have ranged between 100 and 494 per cent. A further 20 companies returned between 20 and 95 per cent.

Pricing of IPOs is driven by a peer group valuation and institutional demand, according to Yogesh Kapur of Enam Financial. “In a booming market, since peer group shares are traded high, it affects the pricing,” he added.

A company like GMR Infrastructure, which is setting up the Delhi and Hyderabad airports, has returned phenomenal amounts. It entered the market at Rs 210 in 2006. In early 2007, it split its share 1:5. It is now trading at Rs 170--an effective price of Rs 850 per share pre-split and a handsome return of 304 per cent. However, institutional investors that invested Rs 4,000 crore into the stock December 2007 in a private placement at Rs 242, are carrying a loss of Rs 72 per GMR share on their books.