The current weak market sentiment and the lukewarm response from investors to its initial public offering (IPO) are expected to weigh on the listing performance of Vedant Fashions, the country’s largest company in men’s Indian wedding and celebration wear, on February 16.
The issue was a complete offer for sale, which means the company will not receive issue proceeds, and expensive valuations are also going to have an impact on the listing price. Experts largely expect the debut to be either on a par with or at a discount to the final issue price. The issue price was fixed at Rs 866 per share, the upper end of the price band.
The Vedant Fashions IPO had received a tepid response, being subscribed 2.57 times during February 4-8, largely supported by qualified institutional buyers whose reserved portion saw 7.49 times subscription. But demand at non-institutional investors and retail investors’ desk was muted, as their allotted quotas were subscribed 1.07 times and 39 percent, respectively.
The company mopped up Rs 3,149.19 crore through its public issue last week.
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“The company’s financials suffered a setback due to the pandemic but returned to normal in the first half of FY22. The issue is valued at P/E 161(x) to its FY21 earnings and P/BV of 24.42(x) which seems to be overpriced,” said Aayush Agrawal, senior analyst at Swastika Investmart. P/E is price to earnings and P/BV is price to book value.
Agrawal added that the IPO proceeds are purely an offer for sale and the company will not get benefit from such proceeds. “This is the reason the company received a tepid response from the investors,” he said.
The company’s grey market share price is on par with the upper end of the price band. “The ongoing global scenarios will continue to impact the Indian market and hence the shares are expected to list below its issue price,” said Agrawal.
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Astha Jain, senior research analyst at Hem Securities is also expecting status quo on listing.
Vedant Fashions is among the top companies in the Indian wedding and celebration wear segment with its flagship brand Manyavar and other brands Mohey, Twamev, Manthan and Mebaz.
The company operates a multi-channel retail distribution network across India and sells its products through exclusive brand outlets (EBOs), multi-brand outlets, large-format stores and online. It also sells products in overseas markets through EBOs and online platforms.
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Its financials were impacted in FY21 due to the pandemic-led lockdowns, but the company managed to show strong performance in the first half of financial year 2021-22.
Profit in the financial year ended March 2021 at Rs 132.90 crore was down 44 percent compared to the previous year while revenue over the same years declined 38.3 percent to Rs 564.82 crore. In FY20, profit had grown by 34 percent to Rs 236.64 crore and revenue increased by 14 percent to Rs 915.5 crore compared to FY19.
In the six-month period ended September 2021, the company clocked a profit of Rs 98.4 crore against a loss of Rs 17.65 crore in the corresponding period a year earlier. Revenue during the same period shot up to Rs 359.84 crore against Rs 71.7 crore, due to the effect of the COVID-19 pandemic.
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“Considering lower-than-expected subscription demand to the IPO, we expect at-par or a discounted listing in a volatile market. We believe the reason behind low demand would be on investors’ concern over 100 percent OFS followed by denting selloff sentiments in recently listed IPOs which failed to perform on listing day,” said Prashanth Tapse, vice-president (research) at Mehta Equities.
Tapse also sees other points of concern like expensive valuations leaving nothing on the table for new investors and factors like the tensions between Russia and Ukraine, global inflationary concerns and rising crude oil prices which would impact the primary as well as secondary markets in near term.
In the previous two sessions, the market corrected more than 4 percent due to weak global cues, before showing a nearly 3 percent bounce back in on February 15.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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