IREDA and Tata Technologies Turn Multibagger Stocks Post Listing. Buy, Avoid, Hold or Sell?

At Equitymaster, we track and conduct due diligence on rapidly growing stocks and do a comprehensive deep dive on various investment themes every day.

Three stocks that have caught our attention in the past few days are Tata Technologies, IREDA, and Gandhar Oil Refinery.

Following bumper listing for all three companies in recent days, many investors are wondering whether the traditional process for pricing an IPO has increasingly swung in favor of these companies.

I mean, bumper listings are kind of becoming a norm these days and there's good data to back this up. Out of the 101 IPOs that we saw in 2023, 84 are still trading at a premium to their issue prices.

So, all this begs a couple of obvious questions for the three stocks that listed recently...

Are these stocks a 'buy' or an 'avoid' for those who don't have them in their portfolios?

Are these stocks a 'sell' or a 'hold' for those who have them in their portfolios?

These are very difficult questions to answer.

But in this editorial, we will consider Tata Technologies, IREDA, and Gandhar Oil Refinery, and look at the current situation of these stocks.

Then you, the reader, can take a call.

# Tata Technologies

In our previous editorials of Tata Tech, we had precisely mentioned that it'll be a historic moment when the Tata group stock makes its debut on BSE and NSE.

And the company did not disappoint.

Tata Technologies made a blockbuster debut on 30 November 2023, listing at a 140% premium to the issue price of Rs 500.

On the same day, the Indian stock market also hit a marketcap of US$ 4 trillion.

Post listing, the stock rallied to Rs 1,334, up 168% from its IPO price. This made it the second-best IPO listing in the past two years, for an IPO size of greater than Rs 5 billion (bn).

Tata Technologies now also holds the record of third-best listing-day closing gains among the IPO debuts in Indian share market.

A bumper listing was surely on the cards as the Rs 30+ bn IPO of Tata Technologies garnered bids worth over Rs 1.5 trillion! The overall subscription was nearly 70 times the shares on offer.

Here's what we can say about Tata Technologies...

If you don't have the stock in your portfolio, you will need to decide if the significant rise in the stock is sufficient to take a long-term call. In other words, does it offer sufficient margin of safety or not?

You will also have to be comfortable with the idea that the stock could fall a bit as investors who were allotted the stock might book profits after seeing such big gains in such short time.

You could already see this happening as shares of Tata Tech, IREDA, and Gandhar Oil have fallen between 4-7% today.

At the time of IPO, Tata Tech was asking for a PE multiple of 33x at its upper price band. The PE multiple has now shot up to 85.4x after the blockbuster listing.

Another factor to look at for Tata Tech is Vietnamese carmaker Vinfast's rise and fall story. Vinfast shares have been largely volatile, rising sharply during debut and falling up to 90% since listing due to multiple factors involved at play (valuations, declining customers, and falling sales).

Vinfast is an important client for Tata Technologies as over 20% of Tata Tech's revenue comes from Vietnam.

Nevertheless, on the positive side, the tech firm has achieved a commendable revenue and profit compound annual growth rate (CAGR) of 10.4% and 20.5%, respectively over five years between 2019-23.

Over the same period, the company's 5-year average return on equity (RoE) and return on capital employed (RoCE) have been admirable at 18% and 25%, respectively.

Moreover, the asset-light and cash-rich model of the IT industry has enabled the company to build up cash, allowing it to reward shareholders generously.

Tata Technologies has also been generous to its investors. Its 10-years' long-term average dividend payout stands at 44%, in line with the industry. It reported a cash and bank balance of Rs 11.9 bn in financial year 2023.

Going forward, investors can expect a similar level of payout from the cash-rich company.

Its strong brand legacy, deep automotive expertise, diversified global presence, and partnerships with industry leaders, gives it an enviable edge and bodes well for its growth aspirations.

Now, if you are already holding the stock, then your action will depend on your purchase price.

If you bought Tata Tech shares just for listing gains, then you will need to have a clear exit price in mind. As the company is expected to be volatile for the coming few days as investors book some profit, you could consider again when the stock price has fallen a bit.

If you have recently bought it as a long-term investment, then you will need to closely track the improving fundamentals of the company and also regularly assess the story.

# IREDA

Let's move on to IREDA.

Within two days, investors who got allotment in Indian Renewable Energy Development Agency (IREDA) shares doubled their money.

The state-owned company listed at a 56% premium over the issue price on 29 November 2023. Post listing, the stock rallied 18% on the same day registering 85% gains over the IPO price.

On the second day, the stock followed up these gains with another 11% and turned multibagger from its issue price of Rs 32.

Here's what we wrote in our IPO note on IREDA:

• Indian Railway Finance Corp (IRFC), as you would know, is a hot favourite stock among the investor community these days. The company is in the business of borrowing funds from the financial markets to finance the acquisition/creation of assets, which are then leased out to the Indian Railways or any entity under the Ministry of Railways.
  
  Similarly, IRDEA is a financial institution actively promoting, developing, and extending financial assistance for new and renewable energy projects, as well as energy efficiency and conservation projects.
  
  IRFC's issue price was around Rs 26 and IREDA has also priced its shares at a low price of Rs 32 at the upper end.
  
  We see a lot of similarities here, but you be the judge after reading about the company's growth prospects, financials, and more...

The bullish sentiment around IREDA is justified given the increasing focus on the government on renewable energy coupled with the company's strong ties with the government, and its strong financials.

Power financing NBFCs are likely to maintain their growing momentum in financial year 2024, driven by increased power demand, population growth, renewable integration, and India's sustainability goals.

Compared to its peers, IREDA has seen the fastest growth in its gross loan portfolio in the past three years.

Additionally, by 2030, financing requirements for renewable energy sectors such as solar and wind are expected to rise sharply in line with the government's goal of 500 GW of built non-fossil fuel-based electricity capacity.

Along with industry tailwinds, the company also enjoys lower cost of borrowing.

At the price of Rs 32 per share, IREDA shares were offered at a price to book value (P/BV) of 1.31x compared to 1.5x in case of REC and 1.2x in case of PFC.

Post listing, the stock PE has shot up to 19.7x while its P/BV ratio now stands at 2.4x.

# Gandhar Oil Refinery

Moving on to Gandhar Oil Refinery, shares of the company listed at 78% premium yesterday beating grey market premium estimates which was indicating the stock to list at a premium of 40%.

Like Tata Tech, and tracking positive market sentiment, shares of the company extended gains and surged another 17% to hit a high of Rs 344.60.

Gandhar Oil is a manufacturer of white oils that caters to the consumer and healthcare end-industries. The company offers an extensive range of over 440 products.

It's the largest manufacturer of white oils and also among the top five players globally in terms of market share in the calendar year 2022.

Since the company's products will always be in demand, it has a leg-up compared to peers which don't have as many offerings as Gandhar.

In the past five years, the company has seen a sharp spike in its bottomline, thereby translating into healthy return ratios and positive cash flows.

Financial Snapshot

Rs m, consolidated	FY19	FY20	FY21	FY22	FY23
Net Sales	35,675	25,022	22,208	35,434	40,794
Growth (%)	31%	-30%	-11%	60%	15%
Operating Profit	986	763	1,611	2,724	3,398
OPM (%)	3%	3%	7%	8%	8%
Net Profit	187	118	1,001	1,474	1,901
Net Margin (%)	1%	0%	5%	4%	5%
ROE (%)	4.9	3.3	24	33.2	33.7
ROCE (%)	12.6	12.8	30	42.2	40.6
Dividend (Rs)	2	0.9	0.2	5.5	0.5
Debt to Equity (x)	0.3	0.3	0.2	0.3	0.2

Data Source: Ace Equity

At the time of IPO, Gandhar Oil Refinery was asking for a PE multiple of around 8-9x, which has now shot up to 15.5x post listing.

Investors who consider getting into the stock must make a peace with fluctuations in margins and volatility in crude prices as specialty oils are highly reliant on base oils derived from Brent crude oil.

In Conclusion

Please note, this editorial does not provide any recommendation, i.e., buy, avoid, hold, or sell, view, on any of these stocks.

The idea was to shed light on how investors need to think when faced with a scenario of taking action on a stock if they've rallied a lot.

We hope this editorial has provided some insight into the thought process needed to buy, avoid, hold, or sell these three stocks.

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...