Most of the public issues in the past few weeks have failed to make a mark and are trading at substantial discount to the opening price
The performance of IPOs continues to be plagued with problems. Once again, new public issues of several companies have taken a nosedive after listing. In the past few weeks, about 14 new stocks have listed on the bourses, out of which eight are now trading below opening price; while others are barely trading at par.
Real-estate developer DB Realty opened at Rs452 on 24 February 2010. It is still trading flat at around Rs450 as on 22st April. Emmbi Polyarns, manufacturer of polymer-based products, got listed on the same day as DB Realty. It is now down a whopping 56% at Rs20 per share.
Cable television services provider Hathway Cable & Datacom too shares the same fate. After listing at a premium of Rs10 to its issue price, it is currently trading at Rs215, down 14% from its listing price.
ARSS Infrastructure Projects is the only stock to have posted healthy returns since listing. This stock listed at a whopping 42% premium to its issue price. It is now trading at Rs1,296, up 103% from listing price. However, market sources said that the gains are mainly due to interested buying which has had an enormous impact on the price because of the small floating stock.
Among the other significant underperformers are Texmo Pipes & Products, DQ Entertainment (International), Pradip Overseas and Shree Ganesh Jewellery House. Texmo is trading at a 27% discount to its listing price, while DQ is floundering at 19% below its listing price.
Pradip Overseas, which listed on 5th April, is down 25% while Shree Ganesh Jewellery House has taken a severe beating, down 44% from its listing price.
Stocks like Man Infraconstruction (up 6%), United Bank of India (up 1%), IL&FS Transportation Networks (up 1%) and Persistent Systems (0%) have barely inched above their respective listing prices.
However, some of these stocks have posted decent gains on their issue prices such as Persistent Systems (up 29%), Man Infraconstruction (up 40%) and DQ Entertainment (up 37%).
Two of the latest public issues have exhibited the same trend. Intrasoft Technologies, which listed on 12th April at Rs150 is now trading down 15% at Rs127. Goenka Diamond & Jewels opened on 16th April and has since gone downhill (-18%).
Such erratic performance is the main reason why retail investors are still shying away from the primary markets. Several of these public issues took place at a time when the stock markets were on a strong bull run. Even at such times, if public issues fail to deliver results, then one can’t blame the investors for not showing interest. Indeed, IPO performance is now completely determined by the interplay between the short-term market condition, greed of the promoters and aftermarket speculation. Given the fact that these factors put together can never ensure a rational offer price and traded price, retail investors are likely to stay away even more in the future.
Even as the bid price for the pan-India licence has gone up by 99%, three circles from the ‘C’ category have failed to receive a single bid
The pan-India licence fees for 3G have reached Rs6,967.55 crore on the 11th day at the end of the 64th round on Thursday, which is almost 99% from the base price of Rs3,500 crore. With this, the Indian government can garner a minimum of Rs50,000 crore as spectrum licensing fees. However, the auction is still not over. Earlier, the bidding was expected to get over in two weeks, although there is no time limit for the same.
“A lot of mixed response has been seen in the 3G auction space. On one hand, there has been aggressive bidding in certain metros and ‘A Circles’, while on the other hand, there has been lacklustre response in ‘B’ and ‘C’ circles. We expect the final price to settle within the $2-billion mark,” said Sangeeta Tripathi, research analyst, Sharekhan Ltd.
Given the supply-demand mismatch (for three 3G spectrum slots) and its importance from a long-term growth perspective, we expect significant overbidding to take place. “We expect the auction amount to reach Rs80,000 crore compared with the base price of Rs35,000 crore at a pan-India level. We expect all the leading operators to strive to get 3G spectrum in most of the key circles such as ‘Metro’ and ‘Circle A’ areas. Failing to win 3G spectrum in these areas could place them at a disadvantage versus competing players. As a result, operators will likely end up bidding aggressively, incurring higher cash outflows," said Ambit Capital Pvt Ltd, in a research note.
Telecom minister A Raja told reporters that with the reserve price increasing 99% over the base price, the government expects to raise Rs50,000 crore against the budget estimate of Rs35,000 crore. The government has set itself a target of Rs35,000 crore by selling 3G spectrum and broadband and wireless access (BWA) services.
While ‘Metro’ and ‘Circle A’ areas continue to attract higher bidding for 3G spectrum, circles in the ‘C’ category failed to match the pace. In fact, for circles like Orissa, Assam and Jammu & Kashmir there is not a single bid yet. The main reason for this trend is lower average revenue per user (ARPU) as well as lower minutes of usage (MoU) in these circles.
In ‘Circle C’, there are six regions—Himachal Pradesh, Bihar, Orissa, Assam, the North-East and Jammu & Kashmir. Out of these, there are two bids each for Himachal Pradesh and the North-East region, while there is a single bid for Bihar at the end of the 64th round on the 11th day of the e-auction.
“Typically, uptake and graduation to 3G services requires enabling infrastructure in terms of 3G-enabled handsets. The market size in terms of graduating to 3G handsets is not very robust in ‘C’ and certain ‘B’ circles, and hence the players are not very positive on these circles and so the low interest,” said Ms Tripathi.
The 3G spectrum will help operators to provide high-speed Internet and data services on their networks to high-value post paid or corporate subscribers, which could translate into higher ARPUs for the operators. "3G spectrum will also increase the bandwidth significantly, which will help operators to overcome the spectrum crunch they are witnessing in high-density urban areas. In this context, it becomes critical for incumbents to win 3G spectrum in ‘Metro’ and ‘Circle A’ areas,” said Ambit Capital Pvt Ltd in a research note.
According to the pre-qualified bidders’ list, six leading operators are bidding at a pan-India level whereas three new entrants are participating in the bidding only in select circles. As a result, there are more than six operators competing for three 3G slots in most of the circles.
This is apart from State-run telecom services providers, Mahanagar Telephone Nigam Ltd (MTNL) and Bharat Sanchar Nigam Ltd (BSNL). However, both MTNL and BSNL will have to pay the licence price equal to the winning bid. In any circle, if the winner has to pay Rs1,000 crore for 3G spectrum, then BSNL or MTNL would also have to pay the same amount for that particular circle, depending on their areas of service.
Mobile operators have already secured term loan facilities from banks and financial institutions for 3G funding. “However, in the short term, depending on the bid price, the winning operator may feel some pressure on its earnings,” said Ms Tripathi from Sharekhan.
Coming back to the action on the 11th day, two ‘Metro’ circles, Delhi and Mumbai, continue to receive the highest bids. While five bidders quoted a price of Rs850.42 crore for Delhi circle, the same for Mumbai was Rs752.38 crore. Tamil Nadu from ‘Circle A’ received the third-highest bid at Rs710.62 crore. All these circles have three slots each and a reserve bid price of Rs320 crore.
Two neighbouring circles, Maharashtra and Gujarat, received bids from five and two bidders, respectively, who quoted Rs696.96 crore and Rs589.16 crore for these circles.
Isn't there a better way to conduct the investigation into the Indian Premier League?
Trust the government to conduct a ham-handed investigation that humiliates the nation and holds up our rampant corruption for the world to snigger at. The raid-raj unleashed by the Income-Tax and Enforcement Departments accompanied by fanciful, but off-the-record claims and innuendo is only humiliating the country.
Isn’t there a better way to conduct this investigation so that the IPL (Indian Premier League), which is acknowledged, even by Lalit Modi's worst detractors as a huge, business-entertainment-and-sporting success is cleaned up but kept alive?
It is not that other countries have not had bigger sleaze and scams than those exposed in the IPL. Notice how the US didn’t unleash a raid raj, even when the sleaze of Wall Street and the toxic sub-prime mortgage derivatives, led to a worldwide financial crisis and bankrupted Iceland. Instead, they pumped in taxpayers’ money to limit the damage, created a system to recover the money with interest and worked at reform over a two-year period and going on.
Can’t the same be done with the IPL? In any case, what is the credibility of a politician-infested Board of Control for Cricket in India (BCCI) to investigate anything? All we know is that the top honchos of most political parties (barring the Left) are represented on it. We know that each of them had their hand in the till in shocking ways—Cricket Minister …oops… agriculture minister Sharad Pawar's son-in-law has a stake; N Srinivasan, who is on the governing council openly owns a franchise and aviation minister Praful Patel was clearly pulling many strings through his daughter (conveniently employed in the IPL office and powerful enough to pull off an Indian Airlines flight from its duty schedule to charter it for the richie-rich IPL crowd). Why, even the Nawab of Pataudi, who suddenly appeared on various television channels recommending that Lalit Modi ought to step aside, may have had a connection to the franchise but for Tharoor upping his bid. Tharoor has (almost) openly alleged that he became the victim of a conspiracy to ensure that Videocon (in which Pataudi's son and current girl friend had a much publicised interest) obtained an IPL franchise.
If this drama isn’t enough, we have AC Muthiah of SPIC, a close friend of the home minister, moving the Supreme Court to re-open his demand that a governing council member ought not to own an IPL franchise.
Clearly the prime minister and the Congress Party is bereft of ideas on how to deal with all this. Why else would we have a report that a home minister, who just offered to resign for failure to handle security issues would be asked to clean up the IPL muck? Harsha Bhogle, a cricket commentator has suggested Deepak Parekh, Narayana Murthy etc. must get involved to find a way to save the IPL (as a former tax commissioner suggested on television) in the process of cleaning it up.
Frankly, that won’t work either. It would require these corporate honchos to look closely at murky political interests in the IPL and doing an honest job is bound to affect their business interests some time. So let us not try to cast this burden on corporate leaders, they have enough on their plate already. The Left parties are demanding a Joint Parliamentary Committee (JPC), but the two financial scams have shown that this dwindles into an orgy of influence peddling with no tangible results.
The alternative would be for the Supreme Court to decide on a slew of charges with regard to the ownership, tax havens, underworld links and the massive illegal betting connected with the game. A couple of cases have already been filed, but a case-by-case hearing of issues will be a slow, long drawn-out process that will destroy the IPL and permanently damage India's credibility.
Instead, G V Ramakrishna, former chairman of the Securities and Exchange Board of India, who has the knack of hitting on the appropriate solutions, has a better idea. He suggests that a three-member committee of judges should be asked to investigate the matter. But the choice of judges must not be left to the law ministry or the courts. It must include Justice JS Varma, Justice SP Bharucha and they should in turn be asked to decide who the third member would be. The tax and enforcement authorities should report to this three-member bench. More importantly, it must be mandated to suggest ways of cleaning up cricket and all sport management in order to ensure transparent and orderly conduct in the future.
Hopefully, this bench will take into account the fact that cricket is as much a business today as it is a sport and it is unrealistic to expect council members to spend time on administration without any personal financial gains. Let bidding for the franchises and various contracts be conducted in an open and transparent manner without involving the BCCI’s governing council. The best outcome would be if the three-member bench manages to rid Indian sport of the debilitating and corrupting influence of netas and babus and allows for professional management with clear deliverables and profit-sharing based on results. That will ensure that our 1.1 billion people start winning games and bring in gold and silver medals by the dozens.