What Next for Devyani, Zomato, & Tatva Chintan Pharma After Stellar IPO Gains?

After stellar listings by Tatva Chintan, Clean Science, G R Infra, and Zomato, which doubled investors' money in less than a month, market participants are applying to any IPO hands down.

There was a huge rush in the primary markets recently. As many as eight companies successfully raised money in two weeks via initial public offerings (IPOs).

The IPO market momentum is expected to continue in the coming months as several companies are headed to raise funds in this bullish market environment.

CMS Info, Inspira Enterprise, Emcure Pharma, Tega Industries, and Sterlite Power, among others, are companies that have filed draft papers recently.

Now, the question is whether investors should hold on to these shares which delivered hot listings or is it time to book profits?

We'll take a look at three companies which delivered stellar gains on listing day and their growth prospects.

#1 Devyani International

On Monday this week, KFC and Pizza Hut operator Devyani International made a strong debut and closed an impressive 37% higher on listing.

Shares of Devyani International settled at Rs 123.35 on the BSE and Rs 123.50 on the NSE.

It opened at Rs 141 and traded with huge volumes throughout the day.

Now, Devyani is among the largest operators of quick service restaurants (QSRs) in India and operates 696 stores across 166 cities in India, as of June 2021.

Yum! Brands Inc. operates brands such as KFC, Pizza Hut, and Taco Bell brands and has presence globally with more than 50,000 restaurants in over 150 countries.

Now these are strong brands. Once countries unlock their way out of this pandemic, Devyani's business volume will witness traction.

One more advantage for Devyani is that it will be debt free soon. The company's chairman said that funds raise from the IPO will mainly be used for repaying debt.

Devyani will practically become debt free after this and generate enough cash for the growth it needs.

You can check out the chairman's recent interview here.

Coming to its industry, the food service profit sector in India is expected to register a robust growth in coming years, on the back of growing delivery ecosystem.

In 2020, the QSR channel made the largest contribution to the food service industry, with a sales share of 34.1%.

#2 Zomato

Food delivery company Zomato made history by becoming India's first unicorn to debut on the stock exchanges.

That too with stellar gains of 66%.

On listing day, Zomato closed at Rs 125.85 on BSE, up 65.6% while on NSE, the stock closed at Rs 125.30, up 64.9% against its issue price of Rs 76.

Incorporated in 2010, Zomato through its technology platform connects customers, restaurant partners and delivery partners, serving their multiple needs.

It provides restaurant partners with industry-specific marketing tools which enable them to engage and acquire customers to grow their business.

It also operates a one-stop procurement solution, Hyper-pure, which supplies high quality ingredients and kitchen products to restaurant partners.

Recently, the company also reported decent results. You can check Zomato's results here.

Now, Zomato has database of its customers that will in turn help the company to know behaviour of through trend analysis.

Its recent acquisitions are also a big positive. Zomato recently acquired 15% of Grofers, an online grocery delivery service provider company.

Currently, Zomato does not provide groceries but after the acquisition, signs are clear that the company is about to enter that space.

In what adds to another beneficial point, India's top mutual funds have bought this stock.

Data shows the top five mutual funds (MF) - SBI MF, HDFC MF, ICICI Prudential MF, Aditya Birla Sun Life MF, and Axis MF have loaded up on Zomato.

Mutual fund buying plays a big role when investors decide which stock they should invest in.

While the company is still a loss making one, its future seems bright.

Speaking about Zomato, co-head of Research at Equitymaster, Tanushree Banerjee recently recorded a video explaining whether the company is set to be the next Microsoft or Apple.

#3 Tatva Chintan Pharma

Specialty chemical sector was already booming and then came the IPO of Tatva Chintan Pharma.

Investors showed huge enthusiasm as the IPO received bids for 588.3 m shares against 3.2 m shares on offer, a whopping 180.4 times subscription rate!

This issue became the second-most subscribed public issue of the calendar year 2021.

The stock was expected to make a stellar listing and it did not fail to impress. Tatva Chintan Pharma shares made a stellar debut, nearly doubling investors' money by soaring 95%.

Tatva Chintan Pharma is the largest and the only manufacturer of structure directing agent or SDAs (40% of revenue) for Zeolites in India while it is the 2nd largest globally.

Given the optimism around India's chemical sector and growth prospects, Tatva Chintan Pharma has huge opportunity with niche and diversified product portfolio.

Its diversified product portfolio has high entry barriers.

The company also has a global presence with wide customer base focusing on green chemistry processes.

It exports to over 25 countries, including US, China, Germany, Japan, South Africa, and the UK.

During fiscal 2021, exports of products amounted to Rs 2.1 bn, which accounted for 70.6% of the company's revenue from operations.

To conclude...

Companies from different sectors are rushing to the primary market to make the best of liquidity and investor optimism.

Now the question arises as to which issues should investors subscribe to and how should they go about investing in IPOs?

There's volatility in the markets due to the recent circular by BSE.

Adding to more concern is the taper tantrum. The US Fed has indicated that it will at some point this year taper its purchases of bonds. In simple terms, the easy liquidity that it has been providing the market is going to get tight.

There are also some geopolitical concerns about the recent developments in Afghanistan.

Assuming highly volatile scenario because of above reasons, how should investors approach the IPO market?

They should focus from a long-term perspective and pick companies with reasonable valuations.

Keeping long-term goals in mind would help plan accordingly and the volatility would be like a roller coaster ride for them.

Richa Agarwal, editor of the smallcap recommendation service Hidden Treasure, recently shared her take on IPOs.

Here's what she wrote in a recent editorial.

• While successful venture capital bets make good stories, theirs is a game of probability. They bet their money on multiple high risk ventures, knowing a lot of them won't survive.
  
  Through IPOs, they extract, and not create value. They have deeper insights and experience into these businesses than retail investors. In the IPO they exit at a price much higher than what they paid to enter. It would be naive to assume this transaction will be in your favour.
  
  Here's what I truly believe.
  
  If any of the loss making Internet companies is going to be the future Amazon, rest assured the market will give you enough opportunities to get in. The IPO may not be the best time.
  
  So have patience and invest mindfully. You will do well.

You can read the entire editorial here: Tech Stocks, Upcoming IPOs, and the Internet Economy

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...