Retail investors return to the IPO game

The recipe that’s working: strong fundamentals, attractive pricing and recent listing gains

Retail investors have lapped up the recent initial public offerings (IPOs) of Man Infraconstruction Ltd (ManInfra) and DQ Entertainment (International) Ltd (DQE) that has completely changed the complexion of the IPO market.

ManInfra’s IPO has been oversubscribed 10.26 times out of the 16.2 lakh shares kept aside for the retail quota, while DQE saw its shares being oversubscribed by 19 times out of the 47,18,100 shares kept aside for the retail quota.

According to market experts, the sudden change in investors’ mood is due to the stellar listing of ARSS Infrastructure Projects Ltd and Jubilant Foodworks. ARSS Infrastructure was listed at Rs650—a hefty premium of 44% above its issue price (Rs450). Jubilant Foodworks opened at Rs161.60 on the Bombay Stock Exchange (BSE)—at 11% premium above the issue price. It is currently quoted at Rs276.80—a listing gain of 91%, which has attracted a number of punters back into the IPO market.

Following these successes, ManInfra opened at Rs335 on the BSE, on Thursday, at a 33% premium over the issue price of Rs252. It touched a high of Rs374.90 and closed at Rs348.25. Jubilant Foodworks received a subscription of 3.78 times (from a quota of 71,41,191 shares) in the retail category and 0.0025 times under the employee category (out of a total quota of 22,67,044 shares).

One other factor that is responsible for the success of DQE and ManInfra is the lesson promoters and investment bankers seem to have learnt when NTPC Ltd and several other high-profile IPOs failed to attract the retail investor. Both DQE and ManInfra were priced reasoanbly and had strong fundamentals.

ManInfra’s basic earnings per share (EPS) was Rs28.30 in 2008-09 and is expected to increase to Rs18 by 2010. On the 2010 EPS and offer price of Rs252, its expected price/earning ratio (P/E) is 14. However, after today’s gains, the stock has already become expensive. ManInfra’s return on capital employed was a humungous 48% in 2008-09—up from 34.2% in FY08.

However, DQE is not a cheap stock. The IPO is probably enjoying a rub-off effect. Its EPS is expected to be Rs2.60 in FY10 after the issue. On the 2010 EPS and offer price of Rs80, its expected P/E is 31. DQE’s return on net worth (RoNW) was 25.24% for the nine months ended 31 December 2009. The company’s revenues stood at Rs605.26 crore for the same period. Its revenue of Rs624.38 crore in FY09 was up 99% compared to Rs313.67 crore in FY08. It registered a net profit of Rs50.08 crore for the nine months ended 31 December 2009. Net profit had jumped 90% to Rs51.04 in 2008-09 from the Rs26.80 crore reported in FY08.

“The recent IPO pricings have been attractive. These issues are doing well because there is enough money left on the table for investors. The bigger IPOs and real-estate IPOs were highly priced and so they were shunned by retail investors,” said an official from IDFC, lead book-running managers for the ManInfra IPO.

However, while IPOs are getting heavily oversubscribed and offering listing gains, one interesting aspect is that employees are still staying away. ManInfra’s IPO saw only 0.0055 times subscription from its quota of 2,25,150 shares for employees. DQE’s employees also steered clear of the IPO which saw only 0.3636 times subscription out of the 3,21,011 shares reserved under the employee category.

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    R Balakrishnan

    1 decade ago

    Retail interest is a function of distributor push and promoter spend on buy back, market making etc.,
    Plus of course, guaranteed 'returns' to the fixers.
    The companies are such that genuine retail interest seems very unlikely.

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