IPOs launched between 2007 and 2009 not successful in market
More than half the IPOs that hit the markets between 2007 and 2009 are trading under water.
The tide has gone out of the Indian stock markets, leaving several listed companies thoroughly exposed.
They were all on a roll through 2007 and early 2008, with the Sensex hitting an all-time high topping 21,200 in January 2008. The global economic downturn that followed did hit the markets hard-the Sensex dropped to nearly 8,000 in March 2009.
But it recovered again to reach the 17,000 level by October 2009. As many as 157 initial public offerings, or IPOs, hit the markets in these three years, raising a total of Rs 70,627 crore, estimates Prime Database, a market offerings tracker.
Yet 84 of these 157, or more than half, are currently trading at far lower than their issue prices. Overpriced and excessively hyped IPOs and those with questionable fundamentals have all suffered.
EXPERT VIEW: How to choose the best IPO to invest in
"The markets were unduly bullish at the time," says Chirag Shah, analyst at ICICI Securities. "Money was easily available and promoters got the valuations they wanted. But eventually everything finds its own level."
Take DEN Networks, for instance. A multi-system operator (MSOs), which provides cable television services in 84 cities, the firm tapped the capital markets in November 2009, raising Rs 390 crore. For almost a year, the scrip stayed close to the issue price, touching an all-time high of Rs 254.40 in August 2010. But since then it has shed 58% of its issue price. It was trading at around Rs 107 in May 2011.
"It is because of our slow pace of digitisation in the past few months," says Mohammad Ghulam Azhar, President, Strategy and Business Development, DEN. Why should that matter? Because MSOs, depend upon local cable networks to take their bouquet of channels to end users and to collect user fees.
Digitisation, or migration from analogue to digital networks, leads to better reporting and in turn better revenues. The more an MSO digitises, the more it's share appreciates. DEN is not alone. Other MSOs and media and entertainment companies have also suffered for similar reasons. Shares of Raj Television Network, Broadcast Initiatives and Cinemax, which too came out with IPOs in the same period, are down by 70-80%.
CHECK OUT: 8 Deadly Sins of Investing
Another near-disaster, for very different reasons, is the Chennaibased Shriram EPC. The company provides services to renewable energy projects, metallurgical and process plants and municipal water-based plants. In February 2008, it raised Rs 150 crore at an issue price of Rs 300 per share; today, it trades at around Rs 130.
While many observers say Shriram EPC overvalued itself, Arun Duggal, its Chairman, demurs. "Our revenue growth did not pan out the way we were expecting in the past three years," he says. Against a compound annual growth rate of 138% in revenues between 2003-4 and 2007-8, Shriram grew just 40% between 2007-8 and 2009-10.
A number of other players in the same or similar space such as Gammon Infrastructure, DLF, Omaxe, Consolidated Construction Consortium, Simplex, Purvankara Projects and KNR Construction that also launched IPOs during the three years have met the same fate; their current share prices are hovering at 30-90% below issue prices.
Companies in the telecom sector are all having a rough time. The stock price of Nu Tek India, a telecom infrastructure player, seems to have eroded the most. Against an issue price of Rs 192, Nu Tek is now trading at Rs 10.96 (taking into account its 2:1 share split).
"It is the business environment that has turned unfavourable," says Vineet Goel, General Manager, Corporate Strategy, Nu Tek. "Our margins declined because of competition." He says whenever telecom companies reduce call rates or pay huge amounts for licences, there is pressure on companies like his to charge less for equipment.
EXPERT VIEW: Check gradings before investing in IPOs
"In 2007, we used to charge Rs 4 lakh to install a telecom tower, the price is down by 40% now," he adds. Other telecom firms that have been hit since their listing range from Idea Cellular, down 14%, to Dhanus Technologies, down 95%.
OnMobile Global, which provides telecom value-added services, listed in February 2008 with a grading of four at Rs 440 per share. The stock is trading 51% below its issue price today. "Operating profits have been hit because of new investments in Brazil, Argentina and Venezuela, following our deal with Spanish telecom giant Telefonica," says Arvind Rao, CEO and MD.
A report by brokerage firm Asit C. Mehta Investment Intermediates says the relatively slow rise in 3G revenues and the general weakness in the European markets will continue to put pressure on revenues.
Most power companies are also faring poorly at the bourses. Be it big ticket IPOs such as Reliance Power, NHPC, Indiabulls Power and JSW Energy, or little-known ones like Indowind Energy and KSK Energy Ventures, all have performed below par (See Laggards on Dalal Street).
The biggest disappointment has been Reliance Power. whose Rs 11,700 crore IPO-the second biggest ever after Coal India's-got a rousing response, being oversubscribed 69 times. Yet today the stock has been beaten down by 61% of its issue price (also taking into account the 3:5 bonus issue, which the company introduced within 20 days of its listing).
"From early 2010, the power sector has been in serious trouble," says Shah of ICICI Securities. "It is mired in problems relating to environment clearances, land acquisition and coal linkages." Stateowned NHPC's stock is down since work was stalled by local opposition at two dams it was to build: the Lower Subansiri hydroelectric project on the Assam-Arunachal Pradesh border and the Parbati II project in Himachal Pradesh. Interestingly, these IPOs had received favourable ratings.
To help minority shareholders make informed choices, Sebi had made IPO grading mandatory for all companies in May 2007. Rating agencies were optimistic about many of these IPOs, grading them at three or four on a scale of five.
How is it that stocks that were rated highly plunged soon after? "In many cases, IPO pricing went beyond the intrinsic value of the company," says Raamdeo Agrawal, Joint Managing Director, Motilal Oswal Financial Services. Issuers and retail investors are both to blame, he says. "Issuers are the best judges of pricing. But the process has turned into a short-term play. Retail investors treat new IPOs like a lottery. They want to earn quickly and sell out within six months."
The biggest sufferer, of course, is the small investor who put his money in these companies. "We have been raising this issue with market regulator Sebi," says G.S. Sood, President, Society for Consumers' and Investors' Protection. "We have suggested they blacklist and penalise merchant bankers whose three consecutive ipos have not done well post listing, which would minimise market manipulation. But sebi thinks disclosure norms are enough. Given the poor financial literacy in the country, sebi needs to take some proactive steps," he says
NEW NORMS, NEW TROUBLES
The BSE recently issued fresh guidelines for small and mid-size companies that were suspended from the exchange for failing to comply with its norms for over a year. From July this year, the listing eligibility criteria for such companies will be raised from Rs 3 crore paid-up capital to Rs 10 crore. In addition, the firms will be required to show they had a net worth of at least Rs 50 crore for three financial years immediately preceding the application for re-listing.
Market experts reckon that the new rules will badly affect retail investors who are stuck with these companies' shares. According to some estimates, there are around 1,400 companies that have been suspended from the BSE.
A 2009 study by Mumbai-based CNI Research revealed that of these, around 789 companies had a market capitalisation of Rs 60,683 crore at the time of suspension. Over 95% of this comprises retail investors' money, while the rest includes institutions' and promoters' stake.
Courtesy: Business Today
They were all on a roll through 2007 and early 2008, with the Sensex hitting an all-time high topping 21,200 in January 2008. The global economic downturn that followed did hit the markets hard-the Sensex dropped to nearly 8,000 in March 2009.
But it recovered again to reach the 17,000 level by October 2009. As many as 157 initial public offerings, or IPOs, hit the markets in these three years, raising a total of Rs 70,627 crore, estimates Prime Database, a market offerings tracker.
Yet 84 of these 157, or more than half, are currently trading at far lower than their issue prices. Overpriced and excessively hyped IPOs and those with questionable fundamentals have all suffered.
EXPERT VIEW: How to choose the best IPO to invest in
"The markets were unduly bullish at the time," says Chirag Shah, analyst at ICICI Securities. "Money was easily available and promoters got the valuations they wanted. But eventually everything finds its own level."
Take DEN Networks, for instance. A multi-system operator (MSOs), which provides cable television services in 84 cities, the firm tapped the capital markets in November 2009, raising Rs 390 crore. For almost a year, the scrip stayed close to the issue price, touching an all-time high of Rs 254.40 in August 2010. But since then it has shed 58% of its issue price. It was trading at around Rs 107 in May 2011.
"It is because of our slow pace of digitisation in the past few months," says Mohammad Ghulam Azhar, President, Strategy and Business Development, DEN. Why should that matter? Because MSOs, depend upon local cable networks to take their bouquet of channels to end users and to collect user fees.
Digitisation, or migration from analogue to digital networks, leads to better reporting and in turn better revenues. The more an MSO digitises, the more it's share appreciates. DEN is not alone. Other MSOs and media and entertainment companies have also suffered for similar reasons. Shares of Raj Television Network, Broadcast Initiatives and Cinemax, which too came out with IPOs in the same period, are down by 70-80%.
CHECK OUT: 8 Deadly Sins of Investing
Another near-disaster, for very different reasons, is the Chennaibased Shriram EPC. The company provides services to renewable energy projects, metallurgical and process plants and municipal water-based plants. In February 2008, it raised Rs 150 crore at an issue price of Rs 300 per share; today, it trades at around Rs 130.
While many observers say Shriram EPC overvalued itself, Arun Duggal, its Chairman, demurs. "Our revenue growth did not pan out the way we were expecting in the past three years," he says. Against a compound annual growth rate of 138% in revenues between 2003-4 and 2007-8, Shriram grew just 40% between 2007-8 and 2009-10.
SOUTH BOUND: Public issues over the years
Companies in the telecom sector are all having a rough time. The stock price of Nu Tek India, a telecom infrastructure player, seems to have eroded the most. Against an issue price of Rs 192, Nu Tek is now trading at Rs 10.96 (taking into account its 2:1 share split).
"It is the business environment that has turned unfavourable," says Vineet Goel, General Manager, Corporate Strategy, Nu Tek. "Our margins declined because of competition." He says whenever telecom companies reduce call rates or pay huge amounts for licences, there is pressure on companies like his to charge less for equipment.
EXPERT VIEW: Check gradings before investing in IPOs
"In 2007, we used to charge Rs 4 lakh to install a telecom tower, the price is down by 40% now," he adds. Other telecom firms that have been hit since their listing range from Idea Cellular, down 14%, to Dhanus Technologies, down 95%.
OnMobile Global, which provides telecom value-added services, listed in February 2008 with a grading of four at Rs 440 per share. The stock is trading 51% below its issue price today. "Operating profits have been hit because of new investments in Brazil, Argentina and Venezuela, following our deal with Spanish telecom giant Telefonica," says Arvind Rao, CEO and MD.
A report by brokerage firm Asit C. Mehta Investment Intermediates says the relatively slow rise in 3G revenues and the general weakness in the European markets will continue to put pressure on revenues.
Most power companies are also faring poorly at the bourses. Be it big ticket IPOs such as Reliance Power, NHPC, Indiabulls Power and JSW Energy, or little-known ones like Indowind Energy and KSK Energy Ventures, all have performed below par (See Laggards on Dalal Street).
The biggest disappointment has been Reliance Power. whose Rs 11,700 crore IPO-the second biggest ever after Coal India's-got a rousing response, being oversubscribed 69 times. Yet today the stock has been beaten down by 61% of its issue price (also taking into account the 3:5 bonus issue, which the company introduced within 20 days of its listing).
"From early 2010, the power sector has been in serious trouble," says Shah of ICICI Securities. "It is mired in problems relating to environment clearances, land acquisition and coal linkages." Stateowned NHPC's stock is down since work was stalled by local opposition at two dams it was to build: the Lower Subansiri hydroelectric project on the Assam-Arunachal Pradesh border and the Parbati II project in Himachal Pradesh. Interestingly, these IPOs had received favourable ratings.
To help minority shareholders make informed choices, Sebi had made IPO grading mandatory for all companies in May 2007. Rating agencies were optimistic about many of these IPOs, grading them at three or four on a scale of five.
How is it that stocks that were rated highly plunged soon after? "In many cases, IPO pricing went beyond the intrinsic value of the company," says Raamdeo Agrawal, Joint Managing Director, Motilal Oswal Financial Services. Issuers and retail investors are both to blame, he says. "Issuers are the best judges of pricing. But the process has turned into a short-term play. Retail investors treat new IPOs like a lottery. They want to earn quickly and sell out within six months."
The biggest sufferer, of course, is the small investor who put his money in these companies. "We have been raising this issue with market regulator Sebi," says G.S. Sood, President, Society for Consumers' and Investors' Protection. "We have suggested they blacklist and penalise merchant bankers whose three consecutive ipos have not done well post listing, which would minimise market manipulation. But sebi thinks disclosure norms are enough. Given the poor financial literacy in the country, sebi needs to take some proactive steps," he says
NEW NORMS, NEW TROUBLES
The BSE recently issued fresh guidelines for small and mid-size companies that were suspended from the exchange for failing to comply with its norms for over a year. From July this year, the listing eligibility criteria for such companies will be raised from Rs 3 crore paid-up capital to Rs 10 crore. In addition, the firms will be required to show they had a net worth of at least Rs 50 crore for three financial years immediately preceding the application for re-listing.
Market experts reckon that the new rules will badly affect retail investors who are stuck with these companies' shares. According to some estimates, there are around 1,400 companies that have been suspended from the BSE.
A 2009 study by Mumbai-based CNI Research revealed that of these, around 789 companies had a market capitalisation of Rs 60,683 crore at the time of suspension. Over 95% of this comprises retail investors' money, while the rest includes institutions' and promoters' stake.
Courtesy: Business Today
