IPOs Fail to Live Up to Their Price ET dt.

16-04-13
Two-thirds of cos listed in 6 years now trade below adjusted offer price; power, realty fare
badly; FMCG the best
BAKUL CHUGAN TONGIA ET INTELLIGENCE GROUP
Two out of three of the 2!-odd co"panies that went public o#er the past si$ years now trade at
least %&' lower than their adjusted offer price, or the price offered at the ti"e of the ()*
adjusted for stoc+ splits, ri,hts or bonus issues- The reasons #ary fro" slowdown of the econo"y
to policy lo,ja" to hu,e debt pileup- The list includes co"panies li+e .eliance )ower, /0F,
1dani )ower, 2/(0, /3 .ealty, 456 7ner,y, 7delweiss Financial 5er#ices, 4aypee (nfratec,
82)C, M*(0 and (ndiabulls )ower, with their stoc+s now tradin, at half the adjusted offer
price, accordin, to an 7T(G analysis- Most of the la,,ards who launched their ()*s at a ti"e
when the econo"y was ,rowin, at o#er 9-&' belon, to the power and real estate sectors- The
capital intensi#e power sector has been facin, a s:uee;e in cash flows owin, to issues related to
tariffs, fuel a#ailability, input costs, wa,es, and delays due to en#iron"ental hurdles- The failure
of ()*s should be #iewed in the conte$t of the lac+lustre e:uity "ar+et perfor"ance durin, the
past few years, says 1nand 5hah, C(*, 38) )aribas Mutual Fund- 1part fro" poor re#enue
#isibility, what is holdin, bac+ in#estors is the hu,e debt on the boo+s of the power co"panies-
1dani )ower, for instance, had a debt of <-& ti"es its current "ar+et capitali;ation at the end of
March 2!%2, while it was %-9 ti"es the "ar+et cap for (ndiabulls )ower, !-9= ti"es for .eliance
)ower- 1ccordin, to 1le$ Mathews, research head, Geojit 38) )aribas Financial 5er#ices,
"any co"panies ha#e created assets but cannot start production because of nu"erous policy
issues and the econo"ic slu"p- The co"panies can ,enerate ,ood re#enues once they put their
installed capacities to opti"u" use, he says- 2owe#er, analysts are not #ery opti"istic when it
co"es to in#estin, in power ,eneration fir"s e#en at their current beaten-down #aluations- 6e
are bein, conser#ati#e and selecti#e in our stoc+ selection in this sector for the ti"e bein, 6e
are wei,hin, our options on stoc+s li+e 8T)C where we belie#e the downside is li"ited, says
Mathews- 7asy a#ailability of funds, at a ti"e econo"y was ,rowin, at well o#er 9', led to a
debt pileup at so"e co"panies with flawed business "odels and a"bitious e$pansion plans
across sectors- They now find it difficult to repay the debt as re#enue ,eneration has slowed
down- >outons .etails debt, for instance, is o#er == ti"es its current "ar+et capitalisation- The
stoc+ now :uotes at less than-6 a share a,ainst its adjusted offer price of-=%& in 2!!?- 1ccordin,
to an analyst who trac+s the (ndian retail sector closely and who did not wish to be na"ed,
>outons could ha#e done better had they planned and e$panded their business ,radually and in a
structured "anner- 6hile the co"pany is tryin, to restructure its debt and the stoc+ price "ay
reco#er if the restructurin, ,oes s"oothly, it would be ridiculous to belie#e that >outons can
co"e bac+ to the offer price le#el, he says- .etail co"panies such as @2 .etail and Cantabil,
which were listed in 2!!? and 2!%! respecti#ely, too fared "iserably, with their stoc+s now
tradin, 96-? ' lower than their adjusted offer prices- (t is not just power, real estate and retail
fir"s that ha#e found the ,oin, tou,h in the face of an econo"ic slowdown- 1 lar,e nu"ber of
phar"aceutical co"panies too ha#e faltered- 1l"ost out of %! phar"aceutical co"panies that
,ot listed durin, the past si$ years are now :uotin, ?&-& ' lower than their adjusted offer
prices- This is despite the fact that phar"a was the second best perfor"in, sector behind FMCG
o#er the past few years, when sectors such as power, infrastructure, capital ,oods and real estate
too+ a beatin,- (n the phar"a sector, ,enerally the co"panies that in#ested in the ,enerics
"ar+et in the A5 ha#e done well- 8ot all s"all or "icro-cap co"panies ha#e been successful-
Those listed at hi,h #aluations ha#e been beaten down badly, says 1nand 5hah- 5o"e
phar"aceutical co"panies that ,ot listed after 2!!6, but failed to ,enerate positi#e returns o#er
the si$-year period include )arabolic /ru,s, 1nus 0ab, 1anjaneya 0ife 5ciences and 5M5
)har"a- FMCG, howe#er, has been the one sector where not only the established players but
also the newly listed co"panies "ade decent ,ains in the past si$ years- Fi#e out of si$ FMCG
co"panies that ,ot listed after 2!!6 perfor"ed well- The list includes 4ubilant Foodwor+s, 4yothi
0aboratories, 3ajaj Corporation, 7stee" 3io *r,anic and 7co Friendly Food )rocessin,- *ther
co"panies that ha#e perfor"ed well after listin, in the past si$ years include 8itin Fire
)rotection, )a,e (ndustries, >a#eri 5eed Co"pany, @-Guard (ndustries and eCler$ 5er#ices-