Why AGS Transact Tech dropped 68% in unlisted market

AGS Transact Technologies IPO

Aggressive investors wanting to beat the crowd in a hot market for initial public offerings (IPOs) have often grabbed shares on the unlisted market, also called the grey market. At times, such bets leave investors hurt.

The AGS Transact Technologies stock is down nearly 68 percent in the unlisted market from its recent peak of Rs 550 a share hit in October 2021. Currently it is quoting at Rs 185-195 per share, a dealer said.

The payments solutions company plans to issue its shares to the public next week. The price band of its IPO has been set at Rs 166-175 per share. This is down about 10% from the current unlisted price. The sharp fall as well as the price band has unsettled investors who acquired stocks from the grey market, analysts said.

“Amid the IPO euphoria, the valuations in the unlisted market spiked and the recent IPO of its identical peer, CMS Info Systems, at much lower valuations dealt a final blow to its (AGS Transact) unlisted share price,” said Manan Doshi, co-founder, UnlistedArena.com, which deals in unlisted and pre-IPO shares.

CMS Info Systems Ltd, which listed in December 2021, had a price band of Rs 205-216 and currently trades nearly 37 percent higher from the upper limit of its price band. Interestingly, CMS Info in its draft red herring prospectus (DRHP) named AGS Transact as a peer firm. However, AGS Transact in its DRHP says it doesn’t have any listed peers.

CMS’ current price to earnings (PE) ratio is at 26x while AGS’ PE ratio works out to 37.87x at the issue price. For FY21, CMS reported a revenue of Rs 1,321.92 crore and its net profit stood at Rs 168.52 crore.  AGS reported Rs 1,758.94 crore revenue and a net profit of Rs 54.79 crore for the same period.

Analysts point out that valuations didn’t reflect the comparable low profitability of AGS. This, along with the recent fall in the equity market, seems to have dragged AGS’s stock price down.

To be sure, AGS is not the only company to have set a price band that is far lower than the prevalent stock price in the unlisted market. Earlier, UTI Asset Management Co Ltd and PB Fintech’s IPO price bands had been below grey market levels. UTI AMC listed on exchanges in September 2020 and its price band was at Rs 552-554 a share; however, its unlisted market price just before the IPO was quoting around Rs1,100 a share.

PB Fintech, parent of platform Paisabazaar, had set an IPO price band of Rs 940-980 a share even though shares were quoting around Rs 1,900 apiece just before the IPO.

“We have witnessed a few accidents in the past also, the reason being diversion from the core concept of investing in the unlisted space which is to enter the companies in the initial and growth stage, provided at reasonable valuations rather than just investing for the sake of confirmed allotment. As the pre-IPO space is evolving, investors are entering unlisted shares at any valuations just because of unsuccessful allotments in IPO,” Doshi added.