If you hope to make money in public equity offers, you have to make some efforts and become an informed investor, says Prithvi Haldea of Prime Database.
Like this story, share it with millions of investors on M3
Factors to watch before investing in IPOs
If you hope to make money in public equity offers, you have to make some efforts and become an informed investor, says Prithvi Haldea of Prime Database.
Like this story, share it with millions of investors on M3
Factors to watch before investing in IPOs
If you hope to make money in public equity offers, you have to make some efforts and become an informed investor, says Prithvi Haldea of Prime Database.
A small post-issue stake does not inspire much confidence
Is the price justified?
Do not be guided by ‘par’ ‘premium’ parameters
In “Justification of Issue Price”, look whether P/E has been calculated on recent period EPS or on weighted average of 2-3 years.
Look at the peer group prices, but do not rely entirely on it.
Industry low/ average/ high figures of P/E are deceptive; there are no two similar companies, each is unique.
What has been the capital build up?
Previous public issues/rights issues/overseas issues/preferential issues.
To whom, when, at what price?
Is there any venture capital/private equity fund investment in the company?
Who invested, when, at what price, for what stake?
How does the offer price compare with price of allotments made to them?
Are these now funds exiting fully or partially in this offer?
Partial exit or no exit is more confidence building; VCs are expecting a higher secondary market exit price. In 2004-05, there were two such companies where VCs exited partially, NDTV and UTV.
What are the objects of the issue?
Finance a new project (new/diversification)?
Undertake expansion
Augment working capital?
Repay debt? (to promoters?)
Do acquisitions?
Fund subsidiaries?
Open branches?
For general corporate purposes?
Exit to promoters/others (offer for sale); No fund inflows into the company?
What are the components of the project cost?
Any oddities in the components of the project cost?
Comparison of cost of projects of two “similar” companies difficult as there would rarely be two exactly similar projects.
What has been the utilisation of existing capacity?
Is the present capacity fully/ substantially being used?
