A third of IPO gainers that hit the primary market last year operate in niche segments.
Being unique does pay. From the data on the share price movement of companies that came out with a public offer in the past one year, those with no listed peers (or where options were very limited) fared better than those where investors had a comparable peer to invest in.
While the Sensex has fallen 8.7 per cent since August of last year, some of these companies have gone up over two times compared to their issue price. Of the 60 companies that hit the market in the past one year, 43 are currently quoting below the offer price. Of the remaining 17, a third are unique plays, quoting above their offer prices. While a couple of companies which operate in niche segments like VA Tech Wabag and Orient Green Power have also not done well, the BSE IPO index has fallen 27 per cent in the past year.
Loveable Lingerie, a women’s innerwear maker, since its listing has zoomed 163 per cent. The company had come out with an IPO at Rs 205 per share and, as of Monday, the stock closed at Rs 540.9. Shares of media and entertainment company Eros Media have risen close to 17 per cent since listing. It closed at Rs 205.4 on Monday, as compared to its issue price of Rs 175. Coal India, a unique play and a company with the world’s largest coal reserves, is up 50.73 per cent. Likewise, Muthoot Finance, a gold finance company, was trading higher than its issue price of Rs 175 till Thursday, but as on Monday it was trading 3.3 per cent below. Here, the only option for investors if they have to pick a gold financing company is Manappuram Finance.
On the flip side, companies such as Tata Steel (which came out with a follow-on offering), Oberoi Realty, Punjab & Sind Bank, Ramky Infrastructure and so on are trading well below their issue prices.
Reason: Market men say these companies performed better on the bourses due to their unique business models and the fact that they did not have listed peers. “When there are no comparative peers available, investors do not have options to compare valuations. Fund managers and portfolio managers have to buy these scrips at the given valuations. On the other hand, companies with listed peers, fund managers and investors have options to choose from,” said Deven Choksey, managing director, KR Choksey.
Going forward, too, market men are of the view that such companies will do well. “Since these companies are the first to be listed in their respective sectors, their brands get built. They will be better known among investors. Those listed later will be benchmarked against these companies and they will command a premium for some time to come. They will enjoy a first-mover advantage for some time,” explained Rakesh Goyal, senior vice president at Bonanza Portfolio.
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Alex Mathew, head of research at Geojit BNP Paribas Financial Services, says as most of these companies are in the consumption segment, their performance is not likely to get dented due to the consumer demand that is there in the country.
So, is it a good time for investors to put their money in these companies? Analysts say it depends from company to company but it is not a bad idea to invest in these scrips. “The shares of these companies will command a premium in the near future. So, it could be good to hold some of these in your portfolio. But, be cautious and do proper homework before making your investment decision,” advises Goyal.
Among the key attributes one should consider while investing in such companies include strong growth outlook, sustainable business models with robust entry barriers and a high return on equity.
More such scrips are in the pipeline. Niche companies such as Jawed Habib (hair and beauty), Just Dial (local search engine), Swajas Air Charter (air charter services provider) and Multi Commodities Exchange (commodities exchange) are among those which have filed their draft red-herring prospectus with the market regulator.