Thursday, October 14, 2010

Prestige IPO - Why Under-subscription Can be Misleading for Investors

Prestige Estates Projects Ltd's IPO that opened on 12th Tuesday will close today. The Issue is not yet fully subscribed, and even if it succeeds in garnering full subscription on the last day, chances are that the retail portion will be grossly undersubscribed. The obvious reason, if this happens, will be the ’Avoid’ advice given out by several brokerages, as well as media analysts. Retail investors are the most easily swayed of all groups, as most others like QIBs, FIIs, and even many HNIs have their own research or private advisers.

Also Read: Prestige IPO Succeeds, Oversubscribed by 2.26 Times
Also Read: Why Prestige IPO Valuations are Reasonable
Also Read: Prestige IPO - What are the Core Attractions?

But the under-subscription, especially retail under-subscription experienced by Prestige IPO need not be that dire a situation for prospective investors. Brokerages and many media analysts project a feeling that retail under-subscription is a listing-day risk, as there wouldn’t be many who missed the chance, vying for the shares after listing.

However, a detailed look at the IPOs of 2009 and 2010, provide evidence to the contrary. DEN Networks (BSE: 533137, NSE: DEN) that went for its IPO in October 2009 just received less than 4000 applications from retail segment including HNIs. But within a year, the DEN scrip had appreciated to Rs. 256, from an opening of Rs. 195.

Coming to early 2010, MBL Infrastructures (BSE: 533152, NSE: MBLINFRA), Godrej Properties (BSE: 533150, NSE: GODREJPROP), and JSW Energy (BSE: 533148, NSE: JSWENERGY ) were all grossly under-subscribed in the retail segment. None of these scrips could garner retail subscription of even 0.5. But within 10 months, MBL Infra had risen from Rs. 190 to Rs. 292.90, Godrej Properties had appreciated from Rs. 510 to Rs. 823, and JSW Energy had gone from Rs. 102 to Rs. 136.

Even more impressive was the performance of Aqua Logistics (BSE: 533159, NSE: AQUA), that not only under-performed in the retail segment, but failed to garner overall subscriptions, and had to revise its price band downwards, as well as extend its closing date. But the Aqua scrip which opened at Rs. 219.40 had zoomed to Rs. 675.30 in less than 10 months.

What was at play here? Almost all these IPOs had accompanying ’Avoid’ tags from a few brokerages and media houses. While retail investors heeded this advice and stayed away, institutional investors - both foreign and domestic - lapped up the shares. It would almost seem that there was a conspiracy of sorts, through which retailers were kept away, for institutional investors to corner the shares.

The riddle gets murkier when we analyse the other side of the issue - whether IPOs with retail oversubscription have indeed done excellently. Take the case of Euro Multivision (BSE: 533109, NSE: EUROMULTI), Astec Lifesciences (BSE: 533138, NSE: ASTEC), and Thinksoft Global (BSE: 533121, NSE: THINKSOFT), companies that went public during the same period, 2009 and 2010. All three had IPOs with ’Subscribe’ tag from several brokerages, and they indeed had oversubscription of multi-times in the retail segment.

But today their year-to-date price performance speaks volumes. While Astec has managed a tiny 2.5% appreciation, Thinksoft Global is down by around 28% and Euro Multivision is down by 44%. Again, the moot question is whether there was any conspiracy of sorts to take retail investors into these scrips.

In any case, this phenomenon of ‘Avoid’ succeeding and ‘Subscribe’ failing is not alien to the realty sector too. Apart from Godrej Properties, a few years back there was the case of Orbit Corporation (BSE: 532837, NSE: ORBITCORP) that had ‘Avoid’ tags from even respected media analysts, but went on to become the most rewarding IPO for investors, around a year later.

Or, who can forget the most famous under-subscription of all time? Infosys Technologies (BSE: 500209, NSE: INFOSYSTCH), which went for its IPO in mid-90s was under-subscribed within the stipulated time, and Morgan Stanley had to do a bail out of the Issue. Simply because, many brokerages and media analysts had decided to ignore the Infosys issue at that time.

Prestige is no Infosys, but there is no reason why it can’t put up a performance like Godrej Properties or Orbit Corp, if the fundamental performance of the company improves going forward. Evidently, there is a case for investors to think on their own before considering recommendations from brokerages and media.

(The above should not be construed as investment advice. All IPOs carry investment risks, and the decision to invest or not in a aparticular Issue should only be of the investor.)

No comments:

Post a Comment


Recent Posts Widget