25 Mar , 2021 By : Kanchan Joshi
After two recent flops on IPO street, investors were evidently jittery with the listing of Laxmi Organic Industries Ltd. The company’s share price is trading at Rs156 currently, a 20% premium over its initial public offering (IPO) issue price. Those who used their own funds for buying the shares made decent profits, but those who borrowed to buy the shares are in losses. Given the high level of oversubscription, the cost of borrowing on a per share basis was around Rs40 for high net worth investors, say analysts. The fact that the listing premium was lower at around Rs26 suggests losses for successive issues.
Investors who borrowed and invested in IPOs lost heavily in the issuances by Easy Trip Planners and Anupama Rasayan. Both these stocks are trading below their issue price. Another smaller IPO that listed on Thursday was Craftsman Automation. The shares made a debut on the exchanges at Rs1,350, lower than its issue price of Rs1,490.
This is unlike the trend seen in those listed earlier with bumper gains, indicating that the IPO bubble has nearly burst. Analysts say, given the huge success of previous IPOs, the companies and bankers are pricing the issue very aggressively. “At the issue price of Rs130, the Laxmi Organics stock is available at 48.8 times FY20 earnings. We believe valuations are on the higher side given its commodity business. We also believe that the upcoming incremental opportunity from fluorospecialities division for three/four years forward is also largely discounted in the price and thus leaves limited opportunity on the table," analysts at ICICI Securities said in a pre-IPO note. Analysts say, since there are already listed companies in the speciality chemicals sector which are trading at cheaper valuations, it remains to be seen if the 20% rise on listing day lasts.
In the case of Craftsman, analysts were wary of the company's valuations in the backdrop of its debt and high competition in the sector. Note that most of these issues were heavily oversubscribed, which means that the sentiment has turned negative recently.
However, retail demand for the ongoing Barbeque Nation Hospitality IPO remains very high. It seems the signs of trouble in the IPO market are ye to be noticed by this category of investors.
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