Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
IPOs: Plummeting returns - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Oct 23, 2001

    IPOs: Plummeting returns

    With the sentiment in the markets at its lowest ebb, the primary market has remained lull for the most part of the year. To put things in perspective, total money mobilised via public issues has fallen by 47.4% to Rs 81 bn for the financial year ended March 31, 2001. Money raised via public issues as a percentage of total money mobilised from the primary market has come down from as high as 24.4% in FY00 to 10.9% in FY01 (IPOs: A year of misfortunes). Lots of factors punctuated the downfall. The benchmark BSE Index has showed a 36% fall in the last twelve months punctuated by various factors. A slowdown in the economy due to lower agricultural output in FY01 and the tech meltdown subdued sentiment in the markets.

    Given this backdrop, we analyse the performance of the companies that hit the markets over the last two years. And the results are not surprising at all! The flavour of the ‘most-recently-ended’ IPO season was software stocks. But after more than a year and a half of the tech collapse, valuations have plummeted to new lows, consequently eroding billions in market capitalisation and investors’ wealth.

    Not much has changed since we prepared the previous report except that the average returns on IPOs have plummeted even further. Let’s take a sectoral view of the IPO performance over the last few months.

    Company Name Offer
    Price (Rs)
    Price (Rs)
    Gain or
    The Toppers
    Vision Organics Sep-00 40 112 180.9%
    Sankhya Infotech Mar-00 10 28 176.5%
    Balaji Telefilms Sep-00 130 241 85.6%
    Mega Channel Computers May-00 18 33 80.6%
    Lanco Global Jul-00 10 18 80.0%
    Infobahn Technologies Apr-00 10 14 37.0%
    Zenith Global Apr-00 10 13 33.0%
    Space Computers Apr-00 20 25 25.0%
    Aksh Optifibre Jul-00 60 69 15.8%
    The Laggards
    Kirloskar Multimedia Jun-00 10 1 -89.0%
    GDR Software Apr-00 10 1 -90.0%
    Irmac Services May-00 30 3 -90.0%
    Sibar Media and Entertainment Jul-00 10 1 -91.0%
    Cinevista Communication Feb-00 300 27 -91.1%
    Softpro Systems Mar-00 85 7 -91.8%
    Telesys Software Feb-00 15 1 -92.0%
    Vintage Cards and Creations Oct-99 225 13 -94.1%
    Omni Ax Software Apr-00 15 1 -95.7%
    Simple Average   61 25 -58.7%

    The successive milestones achieved by some of the top rung pharma majors like Dr. Reddy’s, Ranbaxy and Cipla in recent months seem to have enthused bourses. Almost all the pharma IPOs like Elder Pharma, Ajanta Pharma and Cadila Healthcare have rebounded in the last few months. Nevertheless, the average return is still in the negative territory.

    Some of the software IPOs, which received an overwhelming response from investors during the tech boom, likes Geometric, Hughes Software, HCL Technologies Subex Systems, and Polaris Software are also trading at a significant discount to the issue prices. Geometric Software, for instance, is currently trading at Rs 84, at a discount of 72% to the issue price of Rs 300 per share. Hughes Software is also trading at a 42% discount to the issue price of Rs 315 (split adjusted). A comparatively better performer is Polaris Software, which is trading at Rs 97 (a discount of 8%).

    The scenario is even worse for select regional software companies, which were listed in Bangalore and Hyderabad stock exchanges. These are hardly traded now. Some of the companies like Baron InfoTech and Contech Software have been barred from trading due to non-compliance with the listing regulation of the Bombay Stock Exchange.

    The banking and financial institutions have also been in the center of activity. Progressive reduction in interest rates and CRR effected by the RBI and restructuring initiatives led by a slew of voluntary retirement scheme announcements set the ball rolling in these counters. Barring IDBI Bank, all the other banking and financial institutions are trading at a notable discount to the offer price. Despite restructuring initiatives, slower credit growth, worrying capital adequacy standards, non-performing assets, and most importantly, consolidation in the banking sector has clearly drawn a line between the top rung and the second rung banking and finance companies.

    The banking lot…
    Company Offer
    Price (Rs)
    Price (Rs)
    Gain or
    Loss (%)
    IDBI Bank 18 17 -4%
    Syndicate Bank 10 9 -11%
    Indian Overseas Bank 10 8 -21%
    Centurion Bank 10 7 -27%
    Vijaya Bank 10 7 -31%
    ICICI 73 48 -34%
    PNB Gilts 30 16 -45%
    Simple Average 23 16 -29.8%

    If one were to look on the gainers side, Balaji Telefilms and Aksh Optifibre are the notable gainers. Both the companies are trading at a premium of 86% and 16% to the offer price of Rs 130 and Rs 60 respectively. However, Aksh Optifibre has seen a considerable decline from its highs earlier this year.

    Barring Balaji Telefilms, other media IPOs like Tips Industries, Tabassum International, Cinevista Communications and TV-18 are trading at a significant discount to the issue price. Against the average issue price of Rs 158, media companies are trading at Rs 53 i.e. 62% erosion in value of investments. Excluding Telephoto, almost all the media IPOs were offered at an average P/E multiple of 40x earnings thus taking advantage of the hype created during the time.

    Media: The horror story…
    Company Offer
    Price (Rs)
    Price (Rs)
    Gain or
    Loss (%)
    Balaji Telefilms 130 241 85.6%
    Padmalaya Telefilms 100 61 -39.4%
    Mukta Arts 150 67 -55.3%
    Mid-Day Multimedia 55 23 -58.5%
    Adlabs Films 120 41 -65.5%
    Television Eighteen 180 57 -68.1%
    Telephoto Entertainment 10 3 -71.0%
    Tabassum International 10 2 -83.0%
    Pritish Nandy Communications 150 20 -86.7%
    Tips Industries Limited 325 43 -86.9%
    Cinevista Communication 300 27 -91.1%
    Simple Average 139 53 -61.8%

    The performance of the IPOs on the bourses clearly sends across a strong message to the investor community. All that glitters is not gold. Time and again, investors have been lured into the trap of flavour of the season (in the early 1990s, it was the financial institutions and NBFCs). As the markets rebound, IPO market is likely to see a revival in action. This time too, we can only hope that investors are more prudent while investing (Read our checklist for IPOs).



    Equitymaster requests your view! Post a comment on "IPOs: Plummeting returns". Click here!


    More Views on News

    Sorry! There are no related views on news for this company/sector.

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 21, 2017 (Close)