QIBs and NIIs shy away from fundamentally poor & overpriced IPOs

The recent IPOs of Tara Health Foods and Tarapur Transformers have failed to woo QIBs and NIIs

Qualified Institutional Buyers (QIBs) and Non-institutional Investors (NIIs) have preferred to stay away from the recently-opened low-profile initial public offerings (IPOs). Tara Health Foods Limited (THFL) which opened for subscription on 28 April 2010 has received an overall subscription of zero on day one. The issue closes on 30 April 2010. QIBs and NIIs have completely avoided the IPO which saw zero subscription out of 35 lakh and 15 lakh shares reserved under their respective quotas. The company has 85 lakh shares on offer. The issue is priced at a whopping price band of Rs180-Rs190 per share while the company has posted a net profit of just Rs16.99 crore in the year ended March 2009. The fate was similar in the retail investor category which saw 0.0047 times subscription. Fitch has assigned‘IPO Grade 2’ to THFL which indicates ‘below average’ fundamentals.

Similarly, retail investors have given a thumbs-down to the two IPOs of Nitesh Estates Ltd and Mandhana Industries Ltd which hit the market this week.
Mandhana Industries Ltd, which opened on 27 April 2010, received 0.19 times subscription from retail investors on day two. The company has set a price band of Rs120-Rs130 per share. The issue closes today. CRISIL has assigned an ‘IPO Grade 3’ to Mandhana Industries indicating ‘average’ fundamentals. Nitesh Estates Ltd, which closed on 27 April 2010, has received a subdued 0.22 times subscription from NIIs and 0.16 times the subscription in the retail investor category. Overall, the issue has been subscribed 1.27 times out of the 6.41 crore shares on offer. The issue has been rated ‘IPO Grade 2’ by ratings agency CRISIL which implies ‘below average’ fundamentals. The price band was Rs54-Rs56. Its profit after tax (PAT) was Rs2.85 crore for the year ended March 2009.

Even Mandhana Industries Ltd’s IPO which closes on 29 April 2010 has received 0.19 times subscription on the second day from the retail investor category. Meanwhile, Tarapur Transformers Ltd, which closed yesterday, has managed to get just 0.03 times subscription on the last day from QIBs. It recorded a PAT of Rs2.15 crore in FY09. The issue closed on 28 April 2010.




7 years ago

What is the role of SEBI in such cases? If they act as rubber stamp for whatever documents are placed before them for approval, what is the sanctity of such approvals?


7 years ago

There should be a minimum eligibility criteria of ratings vs. pricing for companies to list ... rather than allowing all and sundry to list at prices that are out of this world

Financial castles in the air-IV

Builders are offering ‘guaranteed’ returns—and rebates— to homebuyers in return for upfront payments even for under-construction properties. This is the fourth part of a continuing series

Anand Bhakitiani Group, a small developer in Chandivali near Powai in Mumbai, is offering an assured return scheme for investment in a property that the group is developing, called ‘Shiv Shrishti’. According to market sources, the (planned 15-storeyed) project was initiated four years back, but due to lack of finance, it is still incomplete. The developer has been able to construct the tower only till the third floor (ground plus two floors) till now.

According to the scheme, the buyer has to book an apartment paying 50% down payment and he can exit the scheme after 15 months (which is the lock-in period) with a profit of Rs1,200 per sq ft, if he decides to sell the flat back to the developer. Currently, the apartments—two bedroom hall & kitchen (BHK) of 1,000 sq ft; three BHK of 1,750 sq ft and four BHK of 2,100 sq ft—are being offered at Rs8,000 per sq ft (plus Rs20/sq ft floor rise premium).

A two BHK costs Rs80 lakh, out of which Rs40 lakh has to be paid during booking the property and the remaining amount can be paid within a year’s time. Moneylife spoke to a broker who is selling these apartments who guaranteed us that it was his responsibility to sell the apartment at Rs9,200 per sq ft after 15 months and hand over the profit to us. He also said that there is no transfer fee required to be paid during the exit for transferring the ownership of the apartments.

The surprising factor is that the broker also suggested that the investors should not waste their money on stamp-duty and registration. The broker is providing an ‘allotment certificate’ on a Rs-100 stamp paper as proof of the buyer’s ownership.

According to the broker, the allotment certificate contains a “strict clause” so that the developer cannot cheat the buyer.

(This is the fourth part of a continuing series)


Index funds are in vogue, but are they good value for money?

Two new index funds are joining the list of a dozen-odd existing ones. A cheaper and a better option is Nifty BeES, an exchange-traded fund

An index mutual fund is constructed to match or track the components of a market index, such as the S&P CNX Nifty. Investing in an index fund is a form of passive investing which replicates a particular index. However, as we have highlighted yesterday, managers try to beat the market by actively managing the funds (

This either leaves them trailing the index or taking more risks to beat the index—when beating the index is not the job of managers running index funds. Most equity index funds fail to even match the returns of their respective benchmarks. One of the biggest disadvantages of index funds as they are run is the lack of transparency and the underlying ‘active management’.

In such a scenario, how can an investor be assured of returns of the index movements?

The best way out is to invest in exchange-traded funds (ETFs). ETFs are securities that track an index or a basket of assets like an index fund, but trade like a stock on an exchange. They experience price change throughout the day and can be traded in real-time. While index funds have to be purchased directly from a mutual fund, ETFs are bought from a stock broker. The Nifty BeES, an ETF that tracks the Nifty, can be freely bought and sold on the exchange, just like a stock.

Here is how Nifty BeES has done since inception. A buyer of Nifty BeES would have got a return of 21.63% compared to Nifty Index returns (its underlying index) of 21.74% from January 2002 till 31 March 2010. Nifty BeES has accurately tracked the movement of the Nifty Index year on year.

The corpus under Nifty BeES has sharply risen from Rs121.48 crore on 31 March 2009 to Rs603.30 crore on 31 March 2010, an astounding 397% increase in one year. As a result of this, Nifty BeES is a liquid traded product that can be bought and sold easily.

One of the biggest advantages of ETFs is that they are much cheaper than index funds. While index funds charge 1% as fund management fees and 1.5% as overall expenses, the charges for Nifty BeES are much lower—just 0.5% as fund management fees and the usual charges of brokerage and demat.

There are other exchange-traded funds such as ICICI SENSEX Prudential Exchange Traded Fund launched in January 2003, Bank BeES Launched in 2004, Kotak Sensex ETF launched in 2008 and the Kotak Nifty ETF launched recently in 2010. The problem with these is that they are thinly traded and so the bid/ask price is wide. But once they gain volumes, these would be ideal products to buy and hold for the average investor.


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