Dalal Street has currently been seeing strong subscriptions to all kinds of IPOs, many of which have been deemed aggressively priced. Worse, most of the IPOs with lofty valuations are also commanding strong premia in debut trade.
This, some market watchers say, suggests a bubble is building up in the IPO mart. “It’s a no-brainer! Investors are chasing listing gains and are unfazed by valuations. That calls for caution,” say analysts.
Easy Trip Planners’ Rs 510 crore IPO, which was sold last week, came from the battered travel industry, which is yet to come out of the pandemic blues. The issue asked for a valuation of 58.7 times FY20 earnings and 49 times FY21 earnings, on an annualised basis.
Reliance Securities reckoned the issue ‘aggressively priced’, and suggested that the travel industry is unlikely to recover significantly in FY22. GEPL Capital recommended a ‘subscribe’ rating on the issue only for listing gains, as it felt the competitive intensity and ambiguity over the revival of international travel were too much of a hangup for the stock.
As things stood, the issue was subscribed a whopping 159.33 times!
MTAR Technologies, whose IPO received 200.79 times subscription, had no listed peer. But brokerages such as Geojit Financial Services and Arihant Capital found the issue aggressively priced at nearly 45 times trailing 12-month EPS. This scrip got listed at 85 per cent premium on Monday.
In the case of Stove Kraft, the asking valuations were lower than its listed peers, as the company’s brand value, margins and return on capital were weaker than its peers.
Analysts advised only aggressive investors with high risk appetite to participate in the issue. The IPO was subscribed 18 times. On the day of stock listing (February 5), Angel Broking said it was cautious about valuations and advised investors to book profit.
All the three IPOs currently on the block – Anupam Rasayan, Craftsman Automation and Laxmi Organic – are priced aggressively. Anupam Rasayan IPO is demanding a PE of 80 times FY20 earnings and 69 times FY21 annualised earnings. Even after factoring in these growth prospects, the issue trades at over 40 times FY23 earnings, which looks expensive compared with its quality peers such as SRF and PI Industries, analysts noted. Choice Broking, Anand Rathi and Reliance Securities find the issue aggressively priced. Ventura Securities advised subscribing to the issue for listing gains.
The IPO of Laxmi Organic is asking for a PE multiple of 49.81 times FY20 earnings at the upper end of the IPO price band. Mitesh Shah and Dhavan Shah of ICICI Securities said these valuations are on the higher side, given that it is a commodity business.
“We also believe the forthcoming incremental opportunity from the fluoro specialties division for three/four years forward is largely discounted in the price and, thus, leaves limited benefits on the table,” they said.
In the case of Craftsman, analysts say at 76.65 times PE multiple, the issue is aggressively priced, but some of them see value in the long run, especially compared with its peers, which are available at even more expensive valuations.
For the Kalyan Jeweller IPO, which opened for subscription on Tuesday, Prabhudas Lilladher has recommended an ‘avoid’ rating. “Although the stock might look cheaper than Titan at 30 times FY23 EPS, a weak balance sheet, poor capital allocation and poor track record of jewellery business listings in the past call for caution,” PL said in a note.
G Chokkalingam, Founder & MD, Equinomics Research & Advisory, said not all, but most IPOs these days are being priced aggressively, and it would be good for lucky investors who received a lot or two of shares to book profit on Day 1 or 2 of listing.
He said investors who did not get allotment in these IPOs, should not rush to buy these shares at listing, as it would be a risky affair. Instead, he advised investors to wait for a couple of months for a healthy correction of 25-30 per cent to take place before entering these stocks.
“Most of the IPOs are being played for listing gains, that is what it looks like. Most of the recent IPOs were fully valued post the listing. The listed space looks much better to enter than the new ones,” Rahul Shah of Motilal Oswal Financial Services told ETNOW.
Nirali Shah, Head of Equity Research, Samco Securities, said Indian bull markets have historically witnessed 80-plus public issues and the numbers tend to drop in bear markets.
“Hence, the ongoing enthusiasm in primary markets through IPOs, FPOs and OFSes has been in line with the ongoing bull market rally. Retail investors are the most excited lot subscribing to these IPOs for listing gains and nearly 78 per cent of total stock listings in FY21 have witnessed first day gains, the highest in at least three years,” she said.
Shah has a word of advice for investors. “During such times even poor-quality issues tend to see mind-boggling subscriptions. It would be safe to judge these IPOs on the basis of one’s risk appetite and liquidity requirement if one decides to hold on to them for the long term,” he said.
