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IPOs: On a positive note...

Sep 5, 2000

The BSE Sensex touched 4,600 points on 4th September 2000 after a dull phase witnessed in the latter part of August. The Initial Public Offering (IPOs) market is on the path of revival once again with the Rs 7 bn issue from Hughes Tele.com at a floor price of Rs 12 per share. Following this, more than 15 companies have lined up to raise more than Rs 15 bn in September with issues from MRO-TEK, Tips Industries, Tabassum, Indian Overseas Bank and Pritish Nandy Communications.

Improving returns...
 Sep-00Aug-00Jul-00
Companies covered79 7038
Average offer price (Rs)83.8 92.0 146.0
Average Current price (Rs)142.3 146.5 288.0
Average rate of return (%)69.7%59.2%97.3%
Ratio of gainers to losers2.04 1.84 1.92

The IPO market was lacklustre during August 2000 with just small software companies tapping the market. Datanet came out with their maiden issue with a issue size of Rs 32 m at the rate of Rs 10 per share. The rising activity in the IPO market during September could be related to the fact that Foreign Institutional Investors have been net buyers to the extent of Rs 12.6 bn in August and there is anticipation that market sentiment will continue to remain buoyant..

The Securities Exchange Board of India, the market regulator, has directed the banks not to lend money to those companies who have planned for an public offer. As per the new regulations, those software companies who do not have a track record, are allowed to tap the primary market, only if their proposed projects are appraised by any bank of financial institution. Small companies manipulate on this by borrowing money from any bank for the project and repay it from the issue proceeds. This is seen as a positive move given the fact that investors were misguided prior to this amendment.

Company NameOffer Period Offer
Price (Rs)
Current
Price (Rs) *
Gain/Loss
(%)
The Toppers
Vantel TechnologiesApr-00 10 82 720%
Cybermate Infotec Feb-99 10 79 691%
Sankhya InfotechMar-00 10 69 586%
Fortune Informatics Sep-99 10 67 567%
Kashyap Radiant SystemsAug-99 10 56 458%
Subex SystemsJul-99 75 406 442%
Hughes Software Systems Oct-99 630 2,954 369%
Times BankJul-99 10 42 316%
S Kumars.com Nov-99 10 40 304%
Logix MicrosystemsOct-99 20 70 252%
Polaris SoftwareAug-99 210 717 242%
Television Eighteen Dec-99 180 536 198%
Sibar Software Services Jan-00 10 28 183%
Software Technology Group International Dec-99 66 172 160%
Pentagon Global Solutions Feb-00 12 30 148%
The Laggards
Care Systems IndiaJun-00 10 7 -29%
Kris Information TechnologyApr-00 10 7 -31%
Archana SoftwareApr-00 20 12 -38%
Sree Rama Multi–Tech Feb-00 120 73 -39%
Vintage Cards and Creations Oct-99 225 136 -40%
Helios & Matheson information Technology Nov-99 50 30 -41%
Telesys Software Feb-00 15 9 -42%
Kirloskar Multimedia LimitedJun-00 10 6 -43%
Elder Pharmaceuticals Feb-00 110 61 -44%
Cadila Healthcare Mar-00 250 139 -45%
Softpro Systems Mar-00 85 46 -46%
Mascot Systems May-00 480 260 -46%
Omni Ax SoftwareApr-00 15 8 -47%
Ajanta Pharma Feb-00 225 114 -50%
Fore C Software Mar-00 16 7 -59%
Total 84 142 69.7%

* Prices as on 4/9/2000

There is a notable change in the top gainers and losers compared to our previous study (Aug-00). The then top gainer Cybemate Infotech has lost out to Vantel Technologies, which recorded a gain of 720%. Most of the software stocks have appreciated backed by the rally in the bourses. However, except for Cadila Healthcare and Elder Pharmaceuticals, all other pharma stocks have been major losers. Ajantha Pharmaceuticals, for instance, has fallen from Rs 163 on 3rd August 2000 to Rs 114 on 4th September 2000.

It clearly reflects that, on a whole, IPOs have given good capital appreciation with the gainers to losers ratio at 2.1 times (the highest till date).


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