HIGH PRICING KILLING THE IPOs
By Ruma Dubey
The word “affordable” needs to be changed or our perception of the word needs to be changed. The very concept of affordable has undergone a sea change. Yes, it is subjective – what is affordable to you could be unaffordable to me but on a majority, people today scoff at the mere mention of the word “affordable”.
This abuse of the word was started by the realty developers, selling affordable homes, whose prices start at around Rs.1 crore. There is a hoarding of a builder put up in Mumbai city, which says that one can buy affordable homes in Sion at a price starting at Rs.4 crore. When did this become affordable? And genuinely, how many of us can truly buy such houses? This blatant abuse of the word and pegging too high prices has virtually brought the sector to standstill.
Another facet where this word “affordable” is abused is in the Indian primary markets or the Initial Public Offerings (IPOs). Every issue which comes out today, firstly has questionable fundamentals and yet, the pricing of the IPO is sky high. Valuations are so expensive that it is become almost a losing proposition to invest in IPOs. After the high price of the IPOs there is virtually no gain left on the table for the investors. It is more prudent to buy the stock after it has got listed as very soon, after listing, many PE funds and big names investors make an exit, bringing down the price. Yes, PE funds and bigwig investors have become mere props to lure investors to the IPO and they in turn make a quick buck, leaving the rest holding a bag full of losses.
And if the company has an established brand name, well reputed lineage or is fundamentally very sound, be assured, the stock will be priced even more high. Bhatri Infratel – it had priced the issue at Rs.220 and it got listed at Rs.200 and today it is at around Rs.174, a 21% discount to the issue price. Another issue was that of PC Jeweller. It had a strong retail presence and well known brand. It priced its issue at Rs.135 and today, quotes at a price 11% lower. It had even gone down to as low as Rs.97. This was followed with another big issue – CARE. It priced its issue at a jaw dropping Rs.750/share and it is today quoted 4% lower. These were the three big issues of 2013 till date and all of them are lower than the listing price. It has got nothing to do with a listless market – it is more to do with their pricing.
How many can afford these IPOs? And why would one want to pay so much in the first place. The now currently open Just Dial is a similar case where the IPO pricing is way ahead of its deserving fundamentals. Or the one before that – Scott Garments. It had nothing major to talk about in the first place and it ruined it further by pricing the issue high. No wonder it got a pathetic response and had to extend its closing dates and despite that found no takers and the issue had to be eventually called off.
On the other hand, take L&T Finance. It came out with its IPO priced at Rs.52. Given its lineage, brand equity and fundamentals, it could have priced it anywhere and people would have still paid. Yet it chose to be truly investor friendly and priced its issue in such a way that today all are in profits. Now that is what we call integrity. How many such promoters do we come across who do not get carried away by greed?
Remember the issue of Infosys? It came way back in 1993 and shares were issued at Rs.95/share. Today even when it is not exactly at its best, it is at over Rs.2000/share. HDFC Bank came out with an IPO in 1995 and it was priced at par, at an unbelievable Rs.10/share. It was oversubscribed 55 times! Yes, these were all issues way back when inflation and cost of living was not so high. But then are the issues of today priced right; aren’ t they way ahead of the inflation? In fact they are adding on to the cost, raising the bar of inflation further.
People today have the money but nowhere to invest; or rather no genuinely affordable, value-for-money avenues to invest. Companies can truly build a strong investor base, that too loyal, if issues are priced at much lower levels, allowing people to make some money. This trend of pricing issues so high is what has culled the primary market; the promoters and lead managers to the issue have killed the goose which laid the golden eggs. But we are the losers in this battle of greed and avarice.
It is wrong to say that the primary market is dull because the secondary market is lackluster. If issues are priced really low, primary markets will boom. Sadly, the promoters do not seem to understand this simple logic…..or they understand but simply do not care.