IPO listing at discount shocks investors

IPO listing at discount shocks investors
ENS ECONOMIC BUREAU

MUMBAI, APR 30: The euphoria in the new issue market has suddenly paved way to disappointment. Companies which came out with initial public offerings (IPOs) at a huge premium are being listed at a huge discount, giving jitters to the investing community. The listing of two companies at a huge discount on the stock exchanges unnerved investors and corporates last week. Reason: a host of IPOs which recently raised public funds are waiting to list their shares and over 100 IPOs are slated to raise funds from the market.

Cadila Healthcare and Elder Pharma are two companies which shocked investors with a discount listing last week. When compared to its initial offer price of Rs 110 per share, the Elder Pharma scrip was listed at Rs 70 on the BSE, a discount of almost 37 per cent. At the end of its first day on the bourse, the Elder stock had already seen a depreciation of around 73 per cent over its IPO price closing at Rs 41.

Indicating that the IPO boom is over, Cadila's poor performance on the bourses continued for the second day running as the stock hit the lower circuit limit at Rs 119 on the BSE and closed at the same level. On Thursday, the Cadila Healthcare stock was listed on the BSE at 40 per cent discount to its early-February offer price of Rs 250. The stock was first quoted at Rs 149 in late morning trade after it was listed at a price of Rs 196.90. Cadila made a public offer of its shares in February this year at a price of Rs 250 per share.

Investors are now closely watching Ajanta Pharma which made a public issue recently. As Ajanta Pharmaceuticals made a public offering of its shares at a price of Rs 225, market sources expect the share to trade below Rs 200 after listing. ``I never expected these companies to trade at a discount. The poor show of IPOs indicates these companies had overcharged investors,'' said an investor.

Others like TV18 and Glenmark Pharma have also fallen below their listing prices. Swal Computers which raised money from the public also disappointed investors. After quoting at Rs 12 on the listing day, the scrip (Rs 10 face value) fell to Rs 8.10 before closing the day at Rs 10.75. However, investors feel the discount is mainly due to the recent drop in share prices. Sensex had fallen from the all-time high of 6,150 on February 14, 2000 to 4,657.55 by April 29.

Pharmaceuticals stocks had fallen sharply after the 2000/01 (April-March) Union budget did not unveil the expected tax sops for research efforts and on the proposed phasing out of tax concessions on export earnings. "The aggressive pricing left nothing for the investor so it is not surprising the share has listed at a sub-offer price level," said a merchant banker.

According to brokers, other pharmaceuticals firms which had made IPOs in recent times are expected to list at discounts to their offer price. ``This was only the second public issue in 2000 which was listed at a discount to the offer price level. I feel others will follow a similar trend. Valuations were at a peak at that time hence these issues were oversubscribed,'' said BL Shah of IRS Finance.

Even as the infotech boom on the stock markets has stated showing signs of petering out, a host of companies from the sector have rushed to the Securities and Exchange Board of India (SEBI) with their initial public offering (IPO) plans. However, with the stock markets looking downward, merchant bankers are not sure whether most of the IPOs will go through in the near future.

Besides, nearly 100 other companies have line up to raise around Rs 5,000 crore from the public before the end of the current boom. Most of these companies are from the infotech, media and telecom sectors. The steep rise in the share prices of many existing companies from these sectors had apparently prompted these companies to raise funds from the capital market. SEBI's decision to dilute the public issue norms has further ensured a flood of IPOs. ``However, with the recent listings of IPOs disappointing investors, I don't think companies will venture out with high premium IPOs in the near future. Many IPOs are likely to be postponed,'' said an official of IDBI.

If the rough patch continues, merchant bankers expect many IPOs to delay their mobilisation plans. "Quite many of them are newcomers in the infotech sector. Their aim is to take advantage of the boom and raise money from the public. The recent crash has made investors wiser," said a merchant banker.