The initial public offerings (IPOs) this year have been a mixed bag. The stock prices of eight of the 16 companies listed this year through IPO route are below their issue prices. Interestingly, these eight companies had ended with losses on the day of their trading debut.
Coffee Day Enterprises, which operates Café Coffee Day chain of restaurants, is the latest addition to the list of companies that have seen their share price slip below the IPO price. Meanwhile, experts say the listing day performance of InterGlobe Aviation and SH Kelkar will be critical in shaping investor appetite towards future IPOs. InterGlobe, which owns the country’s most profitable airline IndiGo, and SH Kelkar, the country’s largest fragrance maker, successfully managed to close their Rs 3,000-crore and Rs 500-crore IPOs, respectively, last week.
“A better test of IPO pricing is investor demand and not listing day performance. To that extent, IndiGo and SH Kelkar should do well on listing, as both saw robust demand,” said Prithvi Haldea, the chairman and managing director of Prime Database. “Whether an issue is able to generate enough secondary market demand determines listing day gains or losses,” he said. Coffee Day Enterprises saw its shares slip 17 per cent on its trading debut on Monday, stoking concerns whether issuers and bankers are leaving enough gains on the table to attract IPO investors.
The Rs 1,100-crore Coffee Day offering had seen tepid demand from retail and high networth investors but managed to sail through on the back of robust institutional demand.
Haldea said institutional investors typically invest if they see long-term prospects and don’t get swayed by listing day performance, which can get impacted by secondary market volatility.
Going by the grey market activity, both IndiGo and SH Kelkar are expected to see listing day gains. According to market players, shares of IndiGo are quoting at a five per cent premium to their issue price of Rs 765 in the grey market. Shares of SH Kelkar too are in demand at 10 per cent above their IPO price, operators said.
“If a big issue like Coffee Day or IndiGo doesn’t list at a premium, it definitely impacts the investor sentiment. For IPOs that see huge retail and HNI participation, listing day performance becomes even more critical,” said an investment banker asking not to be named.
The HNI portion in SH Kelkar’s IPO was oversubscribed 87 times, while that in IndiGo was oversubscribed over three times.