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Indian Indices Trade Marginally Lower; Telecom Stocks Witness Losses
Thu, 5 Oct 11:30 am | Monish Vora, TM Team

Share markets in India are presently trading marginally lower. Sectoral indices are trading on a mixed note with stocks in the telecom sector and oil & gas sector witnessing maximum selling pressure. Healthcare stocks and realty stocks are trading in the red.

The BSE Sensex is trading down 30 points (down 0.1%) and the NSE Nifty is trading down by 12 points (down 0.1%). The BSE Mid Cap index is trading up by 0.5%, while the BSE Small Cap index is trading up by 0.6%. The rupee is trading at 65.19 to the US$.

In the news from IPO space, Prataap Snacks Ltd, whose Rs 4.8 billion IPO concluded recently, made a strong debut on bourses today. The company's share got listed at Rs 1,250 on the BSE, a premium of around 33% to its issue price of Rs 938.

Prataap Snacks Ltd is an Indore based snack food company and operates under the Yellow Diamond brand name. The company is currently present in three major savoury snack food categories in India and all of its products are sold under the Yellow Diamond brand. Over the years, the company has leveraged on its understanding of target markets and consumer segments, product innovation capabilities, extensive distribution network and strategically located manufacturing facilities.

As of FY17, the Prataap Snack's revenues from potato chips, extruded snacks and namkeen represented 24%, 63% and 12% of its total revenues, respectively. The company has set up a pan-India distribution network supported by strategically located manufacturing facilities to cater to its wide range of customers. The company's diversified product portfolio enables it to cater to a wide range of taste preferences and consumer segments, including adults and children.

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As regards valuations, the stock of the company was priced at a whopping 222 times its FY17 earnings at the issue price. Sure, FY17 earnings are a bit depressed, but even if you consider the normalized earnings of FY16, it was nowhere near reasonable valuations with the PE coming at more than 60 times. Despite this, the issue was oversubscribed by more than 47 times.

This clearly states that valuations are getting out of whack in the IPO market.

Take another example of Bharat Road Network (BRNL). The company has been generating losses for the past five years. At the time of the IPO, BRNL was valued at 32 times on EV/EBITDA basis, as can be seen in the chart below. However, the issue was oversubscribed by 1.8 times. In fact, the retail investor portion garnered subscription of 5.7 times.

IPO Market in Bubble Zone

However, note that four out of five companies mentioned in the chart above are trading below their issue price.

One shall thus make sure to not end up paying higher valuations for a company that is yet to establish its worth.

There are several big IPOs in the pipeline in the last few months of 2017. In case you wish to run them through a handy checklist, we have something for you.

Download our Handbook of IPOs to be able to pick the right ones for you.

In the news from pharma sector, Natco Pharma is witnessing buying interest today. This comes as the company's marketing partner Mylan received US drug regulator's approval for generic version of Copaxone in strengths of 40 mg/mL and 20 mg/mL.

The company said that the launching plan for the above products will be communicated after concurring with its partner Mylan. The drugs are indicated for the treatment of patients with relapsing forms of multiple sclerosis (MS), a chronic inflammatory disease of the central nervous system.

The sales for the 20 mg/mL dose was approximately US$ 700 million and for the 40 mg/mL dose was approximately US$ 3.6 billion for the 12 months ending July 31, 2017, Quintiles IMS stated.

Owing to the above development, Natco Pharma share price surged around 20% yesterday and is presently trading up by around 4%.

One shall note that USFDA alerts on Indian pharma companies have increased over the past few years. If that wasn't enough, increasing pricing pressure in the generics segment has dented realisations.

However, the recent development of USFDA expediting the drug approval process can bring some respite for Indian pharma companies. This comes as drug approvals for Indian companies have gone up 50% in the period from January to June 2017 compared to the same period last year.

While short-term pain is expected, companies with strong R&D capabilities and compliant plants will do well over the long term. The uncertainties make it important to be stock specific in the sector. It is important to look for companies that have the competence and staying power to overcome the challenges.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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Mar 21, 2018 02:37 PM