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It has a robust margin and is expanding in Southern India, a high growth area
The much-hyped public issue of Coal India will debut on the bourses tomorrow. Investors wanting to get in on the action on listing have history against them
The lucky few who have been allotted shares in the spectacle that is Coal India's initial public offer (IPO), stand to make a windfall come the time of listing tomorrow. The overwhelming consensus among market experts and analysts is that of a smart Rs40-Rs60 bump over the issue price of Rs245 when the stock debuts on the bourses early morning. Many investors who have been left out will be lining up to get in on some of the action. A recent media report says that employees of Coal India, who could not get allotment in the stock, wish to buy on listing day. This was after trade unions were protesting against the share sale and had advised workers to stay away from the public offer.
However, consider buying the coal behemoth's shares after listing at your own peril. History has not been kind to investors hopping on to a stock post-listing.
Moneylife ran a study covering the performance of IPOs that have come out over the past three years. We found that investors wanting to get in at the time of listing of the stock and holding on to it over the long term are more likely to head towards disaster. Out of the 107 public issues over the past three years, as many as 65 are now trading below their listed price! This means that investors have only a 39% chance of getting something back on their investment in this scenario.
Looking deeper, we observed that 30 stocks are now trading at less than a third of their listing price. Worst still, had you invested in all of these 107 companies at the time of listing, you would now be sitting on a paltry 4% average return. Of course, this figure would have been even lower but for a few stocks that might have been manipulated, generating higher returns.
Apart from a handful of stocks that have exhibited robust growth even after listing, others have mostly turned sour post-listing. Consider the example of another public sector behemoth like Coal India. National Hydro Power Corporation (NHPC) was listed on the bourses on 1st September 2009. The stock price has collapsed by 25% over its listing price of Rs42. NMDC has fared even worse, having witnessed a steep fall of 37% post listing of its stock in March this year. Power Grid Corporation has managed to post a measly 12% gain since listing over three years ago on 5 October 2007.
What is the reason behind such pathetic returns post listing? Listing day gains - the price pops that usually occur at the time of listing of the stocks - effectively leave no room for the stocks to appreciate further. As mentioned earlier, the stocks take a nosedive after making their debut on the bourses. Power Grid had jumped as high as 73% over its issue price on listing, while NMDC had soared 46% on its opening. NHPC too had witnessed a bump of 17% over its issue price at the time of listing.
If the Coal India debut plays out as anticipated, investors should think twice before entering the stock on listing day tomorrow. They could instead take a chance a few weeks later, when the hype and euphoria around the issue wanes a bit.