Decoding The Recent IPO Euphoria And The Road Ahead

After staging an amazing rally during the fiscal year 2015, the Indian equity markets faced the heat from the bears in the next fiscal year as Indian Benchmark Indices marked a decline of about 9 per cent. This decline was largely attributed to the global outbursts including Chinese economy slowdown, slump in the crude oil prices and uncertainty over the US interest rate hikes. Domestic factors which infected the sentiments like delay in the key reforms, poor monsoon and depreciation in rupee kept the country’s markets jittery. 

On one end of the spectrum, the equity markets were falling like a pack of cards but on the other hand of the spectrum, it was a blossom season for the primary markets. After being deserted for the past four years in the IPO market, it was show time for the IPO market as 25 companies hit Dalal Street last fiscal year to raise over Rs 14,400 crore, highest in the last five years. With the market watchdog, Securities and Exchange Board of India (SEBI) affirming standards for organisation to launch their IPOs in an electronic arrangement, to diminish time taken between the share sale and the listing, to improve the reach of retail investors in the share sale and lessen costs; more companies have been going for the IPO route. 

Out of the 25 firms which opted for the IPO route during this fiscal year, the largest of the year was that of InterGlobe Aviation, the company which runs India’s largest and the most profitable no-frill airline Indigo, which garnered Rs 3,130 crore. 

A considerable measure of action is likely to be seen in the current fiscal, hence, Dalal Street provides whereabouts of the up-coming IPOs and there are some good options in the list of 25 IPOs that have hit the market in the fiscal year 2016 and companies which should be given a miss out of this list of 25.  

The graph of BSE IPO index vs Sensex shows quite inline to each other. Meanwhile, majority of the IPOs which are listed on BSE gave handsome return till date.

Relative Performance

Considering subscription front, Non-Institutional Investors (NII) focused IPOs performed quite better on bourses on the listing day for the IPOs. The IPOs floated by companies like Alkem Laboratories, VRL Logistics and Teamlease Services subscribed more than 100 times. However, Quick Heal Technologies IPO subscribed 36.69 times from NIIs and share price declined by 20.73 per cent on listing day.

Qualified Institutional Investors (QIB) wise, IPOs have been subscribed more than 50 per cent like Dr. Lal Pathlabs, VRL Logistics, Alkem Laboratories and Syngene International. These IPOs gave handsome return on the listing day. Majority of the IPOs’ higher subscription in QIBs gave good returns after listing on the bourses. Meanwhile, Adlabs Entertainment subscribed just 0.53x times and surged 13.84 per cent on listing day.

 On retail investors front, out of the 25 IPOs, 18 IPOs witnessed subscription more than one time and majority of the IPOs gave better returns on the listing day.

On listing day, IPOs which remained in limelight are, Dr Lal Pathlabs, VRL Logistics, Narayana Hrudayalaya, Alkem Laboratories. These stocks surged more than 30 per cent on their respective offer prices.

The detailed performance of FY16 listed IPOs from their subscription, listing day and till date can be found glaringly in the following table.
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Out of 25 IPOs listed during FY16, we are taking some of the stocks which have outperformed index as well as financially too. Meanwhile, stocks which have not performed financially sound as well as technical parameters also have been covered here.

Syngne International’s revenue increased by 27.53 per cent to Rs 776 crore in 9MFY16 as compared to same period in previous fiscal year. The company’s EBITDA too rose by 28.78 per cent to Rs 255 crore in 9MFY16 on yearly basis. Its bottom line also increased by 29.56 per cent to Rs 155 crore in 9MFY16 on yearly basis.

The stock after registering high of Rs 433.29 on January 5, 2016 entered into a corrective phase and went on to register low of Rs 353.59 on January 20, 2016. After registering low around Rs 353.59, the stock did bounce back and moved up to the levels of Rs 412. At present, the stock once again took support around levels of Rs 349. Hence, marking multiple bottoms around levels of Rs 349-354 and the stock is likely to move up from current levels.

SH Kelkar & Company’s consolidated top line increased by 17.2 per cent to Rs 229 crore in Q3FY16 as compared to same period in the previous financial year. The company’s EBITDA rose more than two fold to Rs 41 crore in Q3FY16 on yearly basis. Its bottom line boosted by five times to Rs 23.41 crore in Q3FY16 as compared to same period in previous fiscal year.

The stock registered high of Rs 270.59 on January 13, 2016 and since then the stock entered into a downtrend and marked a low of Rs 201.13. The stock witnessed a breakout of symmetrical triangle pattern and this pattern shows two converging trend lines, the lower on is ascending and the upper on is descending. At present, the stock is hovering around the symmetrical triangle breakout. Hence, this stock looks attractive at current levels.

UFO Moviez India’s consolidated revenue increased by 19.15 per cent to Rs 423 crore in 9MFY16 as compared to same period in previous financial year. The company’s EBITDA also rose by 8.4 per cent to Rs 129 crore in 9MFY16 on yearly basis. Its net profit increased by 13.53 per cent to Rs 45.74 crore in 9MFY16 as compared to same period in previous fiscal year.

The stock after registering high of Rs 634.52 entered into a corrective phase and registered a low of Rs 376.09. The stock formed a tweezer bottom pattern around levels of 376.09 and entered into an uptrend. It recently breached its important resistance of Rs 502 which is also its 200-day EMA. The daily 14-period RSI is quoting around levels of 76 and is in bullish range.  Considering, that the stock is trading above its 200-day EMA and the price movement is supported by RSI i.e. momentum oscillator, one can enter into this stock.

Dr. Lal Pathlabs’ revenue consolidated increased just 1 per cent to Rs 594 crore in 9MFY16 as compared to same period in previous fiscal year. The company’s EBITDA also rose by 39.29 per cent to Rs 156 crore in 9MFY16 on yearly basis. Its bottom line was boosted by 46.03 per cent to Rs 98 crore in 9MFY16 as compared to same period in the previous financial year.

This stock after registering low of Rs 696.5 on January 20, 2016, entered in an uptrend and marked sequence of higher top higher bottom. At present, the stock is trading above its important long term moving average i.e. 200-day EMA. The stock has crucial support in the range of Rs 900-908. Investors can enter into this stock around levels of 900-908.  Considering the formation positive sequence of higher top higher bottom and stock trading above its 200-day EMA it looks attractive at current juncture.

Interglobe Aviation’s consolidated top line increased by 19.27 per cent to Rs 12049 crore in 9MFY16 as compared to same period in the previous fiscal year. The company’s EBITDA rose almost double to Rs 2201 crore on yearly basis because of lower crude oil prices. Its net profit too increased by two times to Rs 1410 crore in 9MFY16 as compared to same period in previous financial year.

The stock after registering high of Rs 1394.85 on January 1, 2016 entered into a downtrend and touched market low of Rs 698.35. After a hefty correction of over 50 per cent form the highs and entered in pullback mode. The stock also formed sequence of higher top higher bottom. At present, the stock is hovering around its 10-day EMA and is nearing support of lower line of the upward rising channel. Investors can enter the stock for decent gains.

Stocks to be Avoided:

MEP Infrastructure’s consolidated revenue decreased by 0.2 per cent to Rs 1484 crore in 9MFY16 as compared to same period in previous financial year. The company’s interest expense declined by 4.65 per cent to RS 287 crore in 9MFY16 on yearly basis. It reported net profit of Rs 16.27 crore in 9MFY16 against net loss of Rs 127 crore in 9MFY15.

This stock after making debut on the bourses in the month of September did show a decent up-move and it registered a high of Rs 59.70 in the month of October, 2016. However, the up-move lost its momentum as stock formed a ‘Bearish Harami’ Candle on the daily time frame around the high levels. Since, then the stock entered into downtrend and made sequence of lower top. Recently, the stock saw a trending move on the upside, but the moved was capped as stock formed multiple ‘Doji’ Candlestick around the supply zone which is placed in zone of Rs 44-46. Considering the supply or unwinding happening in the stock at higher levels, it’s likely that stock may remain offbeat in the coming months.

Coffee Day Enterprises

Coffee Day Enterprises’ consolidated top line increased by 11.56 per cent to Rs 1969 crore in 9MFY16 as compared to same period in previous fiscal year. The company’s EBITDA also rose by 28.84 per cent to Rs 344 crore in 9MFY16 on yearly basis. It posted net loss of Rs 27 crore in 9MFY16 against net loss of Rs 70 crore in 9MFY16 as compared to same period in previous financial year. Coffee Day Enterprises’ bottom line is not performing due to debt more than Rs 1200 crore as of FY15.

The stock has registered high of Rs 317 on NSE and since then the stock has entered in a downtrend and has market sequence of lower top lower bottom pattern and this pattern is considered a bearish pattern. Recently, stock has seen a decent pullback rally from the lower levels, however, this rally was capped up to levels of Rs 250.5 and the range of Rs 250-251 has proven to be a strong resistance/supply zone for the stock and stock has formed an indecisive candlestick pattern i.e. ‘Doji’ on April 21, 2016. As long as the stock stays below Rs 250-252 it’s likely to be under influence of bears.

Power Mech Projects’ revenue declined by 1.32 per cent to Rs 974 crore in 9MFY16 as compared to same period in previous financial year. The company’s EBITDA increased by 5.65 per cent to Rs 131 crore in 9MFY16 on yearly basis. Its net profit rose by 2.18 per cent to Rs 54.49 crore in 9MFY16 on yearly basis.

Power Mech stock after listing had seen a decent and steady performance. The stock registered high of Rs 686.4 and formed a potential ‘Bearish Harami’ pattern at the top. After formation of this pattern right at the top the volatility mounted in the stock and stock breached its September lows. However, the stock did find support near levels of Rs 530-532 and saw a bounce back, but this was not backed by volumes and momentum oscillator. Hence, we expect the stock is likely to be in sideway to range bound mode.

Shree Pushkar Chemicals and Fertilisers’ revenue declined by 17.95 per cent to Rs 49.61 crore in Q3FY16 as compared to same period in previous fiscal year. The company’s EBITDA too decreased by 16.36 per cent to Rs 6.44 crore in Q3FY16 on yearly basis. However, it reported net profit increased by 18.25 per cent to Rs 5.96 crore in Q3FY16 on yearly basis.

The stock after listing on the exchanges moved in a strong uptrend and formed a sequence of higher top and higher bottom. On the weekly time frame the stock was facing resistance around levels of Rs 128-129.5, however, on  April 1, 2016 the bulls managed to pierce through the resistance zone and went on to touch levels of Rs 143. On the momentum oscillator RSI negative divergence was observed at higher levels. On April 22, 2016 the stock had formed a ‘Doji’ Candle which suggests indecision and if this pattern is found at the top it act as a reversal pattern, however, confirmation is required. Now going forward if the stock breaches level of Rs 127 it’s likely to witness correction.

Alkem Laboratories consolidated revenue increased by 35.96 per cent to Rs 3849 crore in 9MFY16 on yearly basis. The company’s net profit also boosted by more than two times to Rs 616 crore in 9MFY16 as compared to sane period in previous fiscal year.

Alkem stock registered high of Rs 1588.90 on January 5, 2016 and since then it has entered into downtrend. The stock did find support around levels of Rs 1227-1255 and it moved in a range for about three months and stock breached lower end of the range on April 18, 2016. Thereafter, it continued its downward journey. As if now there is no reversal indication on the chart for this stock. Hence, one should avoid this stock considering the present outlook of the technical chart. 

Prabhat Dairy’s consolidated revenue increased by 19.72 per cent to Rs 862 crore in 9MFY16 as compared to same period in previous fiscal year. The company’s EBITDA also rose by 18.66 per cent to Rs 89 crore in 9MFY16 on yearly basis. Its 13.76 per cent to Rs 16.36 crore in 9MFY16 as compared to same period in previous financial year.

This stock registered high of Rs 169 and since then it witnessed a vertical fall and the stock registered a low of Rs 71. The stock did manage to bounce back from the lower levels and moved up to levels of Rs 126. On the weekly chart stock formed a ‘Gravestone Doji’ Candle on April 13, 2016 this candlestick pattern indicates that the up-move is running out of steam. Significance of this candle is strong in this stock as this candle is formed near resistance zone which is placed around levels of Rs 123-127. Hence, one should avoid this stock considering the Gravestone Doji formation near resistance zone.

The financial year 2016 remained IPO centric for the Indian equity markets. There are companies which have lined up their IPOs to raise funds from primary capital market. The majority of the companies are Vodafone India, L&T Infotech etc. There are about Rs 15000 crore worth IPOs lined up and the list includes Dilip Buildcon, New Delhi Centre for Sight, Ujjivan Financial Services, Quess Corp, Hinduja Leyland Finance and Seaways Shipping & Logistics.

According to SEBI sources, 25 companies plan to raise Rs 12500 crore and have secured approval of from the regulatory board. During the first half of the current financial year, about six firms are going to raise money about Rs 3000 crore and also filed DRHPs to the SEBI. The proceeding of the IPO raised money will be used to fund business expansion plans, to meet working capital requirements and to repay loan and for other general corporate purposes.  

The biggest IPO in terms of issue size, Vodafone India has plans to raise funds USD 2 billion (Rs 13300 crore). The parent company Vodafone Group Plc was laying the groundwork for India's largest IPO. However, the firm then had disclosed that the stock offering would be a pure stake sale by the parent firm or involve primary capital raising. Vodafone may sell 10 per cent of its India business and set the valuation of its operations at USD 20 billion. Meanwhile, competitors such as Bharti Airtel has free float market capitalisation of Rs 50059 crore and Idea Cellular has free float market capitalisation of Rs 13065 crore.

The movement towards an IPO comes even as Vodafone wages a prolonged battle with Indian tax authorities. The tax department and Vodafone have been locked in a dispute since 2007 over the telecom company’s USD 11 billion acquisition of Hutchison Essar, now known as Vodafone India. The tax demand, which was initially around Rs 8000 crore, has now more than doubled to Rs 20000 crore after adding interest and penalty.

Larsen and Toubro Infotech, an arm of engineering conglomerate Larsen and Toubro (L&T) also filed DRHP to SEBI for IPO to raise Rs 2000 crore. The company’s DRHP is in process as a status. After four months filing DRHP, parent firm L&T changed the offer structure and other considerations as per the requirement from SEBI. The company filed once again DRHP as market conditions were not right for the issue. L&T Infotech had planned to sell 17 million shares, or 10.85 per cent of the share capital, as part of the public issue.