6 Mega IPOs Around the Corner. Here's How You Should Plan...

2021 was a bumper year for initial public offers (IPOs) in India.

New age start-ups to large sized public offerings, companies stoked the appetite of Indian retail investors with stellar IPO listings.

But what about 2022? Well, we're not seeing the bumper listings in 2022 but the momentum continues.

The Life Insurance Corporation of India (LIC) launched India's biggest IPO on 4 May 2022. Several other companies followed suit and concluded their initial public offers.

The LIC IPO triggered a frenzy among prospective investors resulting in the fastest growing demat account holders in India.

Why Are IPOs an Attractive Investment Opportunity?

IPOs are a great way to get your skin in the game early on with businesses that have strong fundamentals. That said, the issue price alone should not be the reason to subscribe to any given IPO.

The act of participating in an IPO is no different than investing in shares of any existing public listed company. Ideally, the decision to subscribe to any IPO should be the result of thorough analysis and planning.

That means looking at company fundamentals and understanding the facets of the business before you get your hands on the issue.

How to Plan Your Investment for Mega IPOs in 2022?

For first time subscribers to any IPO, there are certain aspects that can guide you to gain a strong foothold on the public offer.

To begin with, it is essential to vet and evaluate the viability of the business idea for any IPO bound company. This includes gaining insights into the company products or services, the competitive environment and the possible opportunities for growth in the long term.

There should be enough compelling reasons that will drive you to participate in any public offering. This should stem from a strong belief in the company's potential to consistently deliver high quality products and services.

Along with that, there should be a promise of meaningful growth in revenue and sales.

Lastly, the company should be able to maintain control over the pricing of the product.

It's possible that other factors may influence the strength of your perspective basis the given premise. This largely depends on the nature of the company and the landscape in which it operates.

It may also involve the market share the company enjoys, presence of viable substitutes of the product or service by a competitor, and the company's vulnerability to regulatory, technological or even political changes.

Moreover, it's important to remember IPOs are not immune to risks. As a matter of fact, IPOs come with their own unique set of risks very different from those of the average shares that are already being traded in the market.

So, if you are ready to take the plunge with the next mega IPO, here's how you should plan ahead.

#1 Check the recent performance

When participating in an IPO, you should certainly run a check on the company's year on year (YoY) performance.

If the company financials show a yearly growth, then it is indicative that the business is doing fairly well. That said, keep a lookout for any sudden spike in the business revenue very close to the IPO launch.

#2 Probe the promoter background and management team

On many occasions, IPOs act as exit windows for existing company promoters. Before you invest check out who has been running the company, their background and experience and the average number of years that they have spent in the business.

Go through the management profiles to understand who you expect to play a key role in the operations to drive the company's growth.

#3 Skim the Draft Red Herring Prospectus (DRHP)

Put a lot of effort into carefully reading the draft red herring prospectus (DRHP). Apart from your individual research through articles and online sources, this is the only material directly released by all IPO bound companies prior to launching their public issue.

Even though it may be a dry read, the prospectus does offer an insight into the opportunities and risks that the company has to offer.

You will also understand why the company has chosen to go public at this stage and what the company plans to do with the money that it intends to raise via the IPO.

#4 Understand the utilisation of the proceeds

You will find all the information on how the proceeds raised through the IPO will be used by the company in the red herring prospectus.

This is important because if the company's objective, for instance, is to repay existing debt then perhaps, it is not an attractive investment opportunity from the investor's point of view.

On the other hand, if the company's goals are to partially service its liabilities and use the remaining funds to carry out research and expand the business, then there is the promise of future gains. This makes it a more investible opportunity.

#5 Assess the valuation of the offer

It is important to check the valuation of the offer and compare it with immediate peers that are already trading in the market. This helps in understanding if the offer price is undervalued, fairly valued or overvalued based on industry parameters and profitability ratios.

#6 Have an exit strategy

If you are participating in an IPO with the goal to make a short-term killing, it's important to pre-decide which stage to sell and book profit/loss.

For short-term investors who are looking to flip and exit within a couple of days of the IPO launch, the exit level must be decided well in advance.

Also, keep in mind that just subscribing to an IPO does not guarantee a return. Therefore, it is important to also decide on your loss levels if things do not work out in your favour.

Which Are the 5 Mega IPOs Around the Corner?

Now that you have a fair idea of how to plan your IPO investments, here are the 5 mega IPOs that are expected to launch in 2022.

#1 PharmEasy

PharmEasy is India's e-pharmacy unicorn. The marketplace offers over 100,000 medications and healthcare products and delivers them pan India.

Promoters Dharmil Sheth and Dr Dhaval Shah founded the company in 2015. In 2019, PharmEasy merged with its investor entity, Ascent Health, to form API Holdings.

The company filed its DRHP in November 2021 and the IPO proposal received a green light from the market regulator in February 2022. The IPO is scheduled to launch sometime in 2022. This is because the company promoters and management have decided to wait out the ongoing market uncertainty.

According to the prospectus, PharmEasy plans to raise Rs 62.5 bn with the IPO.

A significant chunk of the funds will be used to pay off existing debts which will help the company minimise its outstanding consolidated indebtedness. PharmEasy will also be able to maintain a favourable debt-equity ratio.

Going forward this will enable PharmEasy to use internal accruals and its subsidiaries to invest in expanding and growing the business further.

A part of the funds will also be utilised to fund organic growth efforts and inorganic growth through acquisitions and other strategic initiatives.

#2 Bajaj Energy

Bajaj Energy (BEL) is one of the largest, independent private sector thermal generation companies located in Uttar Pradesh (UP).

Established in 2008, the company has assimilated decades of knowledge in financing, building, and operating thermal power generation facilities.

Currently, it has a coal-powered thermal power generation capacity of 2,430 MW spread across 5 plants in 5 locations in UP.

The company lodged its DRHP in April 2019 and has plans to launch the IPO in 2022 with an estimated issue size of Rs 51.5 bn and an offer-for-sale (OFS) of shares up to Rs 3 bn by Bajaj Power Ventures.

#3 Droom Technologies

Auto marketplace unicorn Droom is the only Indian player that offers the new age digital experience for automobiles.

Promoted by Sandeep Agarwal and Droom PTE Ltd, this 8-year-old company headquartered in Gurugram lists 1.2 m vehicles on its platform and is a market leader and one of the top online channels for new and used car sales in the country.

The company filed its DRHP in November 2021 and is expected to launch an IPO of Rs 30 bn of which Rs 20 bn will be through a fresh issue of equity shares and an OFS of Rs 10 bn.

Sandeep Agarwal, founder of Droom holds a 32% stake in the company and promises to not offload any additional stake until the company reaches a US$ 5 bn valuation.

The IPO is likely to hit the market in the next two months. As per the DRHP, Droom plans to use anywhere between Rs 5 bn and 6 bn of the proceeds raised through the IPO on acquisitions in the next two years. The rest of the funds will be utilised for the organic expansion of the business.

#4 Boat

Boat, the flagship brand of Imagine Marketing, is one of India's fastest growing direct-to-consumer audio focused electronics businesses.

Incorporated in 2013, the founders Sameer Mehta and Aman Gupta launched the 'Boat' brand in 2014. They both collectively own over 50% of the company's shares with an individual stake of 28.3% each.

The company had a stellar performance in the fiscal year 2021 seeing over 100% revenue growth from Rs 60.9 bn in the financial year 2020 to Rs 131.3 bn in 2021.

The New Delhi based company is seeking a US$ 1.5 to 2 bn valuation by floating the IPO in 2022. The DRHP was filed on 26 January 2022 for an IPO of Rs 20 bn.

As described in the prospectus, the company aims to issue Rs 9 bn worth of fresh equity shares and an OFS of Rs 11 bn. The total issue size is expected to be Rs 20 bn.

Funds raised from the IPO will be primarily used to repay and prepay specific borrowings. Leftover funds will be directed toward general corporate purposes.

#5 Reliance Jio & Reliance Retail

The IPO calendar for 2022 is expected to close with a bang. Reliance Industries' chairman announced in the company's annual general meeting (AGM) the listing of two mega IPOs - Reliance Jio and Reliance Retail.

Reliance Jio is the telecom behemoth and boasts of a 402 m subscriber base around the country as of February 2022. Reliance Retail is the retail arm of the conglomerate that operates one of the largest eCommerce platforms in India and runs 14,500 physical stores across the country.

Reliance Industries plans to file the DRHPs with market regulator once the Russia - Ukraine conflict settles down.

These much-anticipated IPOs are likely to be the biggest in the history of the Indian stock market.

Experts are estimating an issue size of Rs 500 bn to Rs 700 bn per company and a listing in the National Stock Exchange (NSE), Bombay Stock Exchange (BSE) and the also in the National Association of Securities Dealers Automated Quotations (NASDAQ) in the United States of America.

#6 Go Air

Wadia Group owned GoAir is one of India's best-known, low-cost carriers with over 10% passenger market share.

Headquartered in Mumbai, the company was founded by Jehangir Wadia and started out as GoAir in 2005. However, it has recently rebranded as Go First in January 2022.

Go Air filed its DRHP with the regulator on 14 May 2021 to raise Rs 36 bn with their public offering. The company received the green signal from the regulator on 31 August 2021. There will just be a fresh issue and no OFS. The IPO is scheduled for launch in June 2022.

With the funds raised through the IPO, GoAir plans to utilise it for prepayment and repayment of debt accumulated by the company.

This includes paying key vendors like Indian Oil Corporation (IOC) for the fuel that has been supplied to GoAir. The remainder of the funds will be invested in the maintenance and upkeep of its fleet of aircrafts.

Are IPOs the Right Investment Strategy for You?

That's a decision that only you can make. And it should definitely not be based on market hype, recommendations, or peer pressure.

IPOs that are aligned with your overall investment objectives, long term financial goals and suit your risk appetite can be explored as an investment strategy.

Even though the company may have started out small, you need to have a strong belief in the growth potential of the business.

The difficult task of all is to find these gems. Being ill-informed, applying because of grey market premium and blindly trusting is not the way to go.

Do your research, analysis, and plan well. Wait for the right time to jump in or exit.

When it comes to handling the IPO market, those who are sceptical and cautious have a better chance of faring well.

The secret sauce is made up of evaluating, collating, and developing a perspective basis the information available on the issue while simultaneously assessing it for weaknesses.

After all, when you have selected an IPO on a fundamental premise, there is a high probability the business will deliver profits irrespective of market trends and reward those who remain invested for the long haul.

If you get it right, you may just have a winner on your hands.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...