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Daily Voice | Sonam Srivastava of Wright Research advises caution on eMudhra IPO, expects tepid listing for Delhivery, but Venus at premium

"The IPO market premium is primarily linked to the sentiment in the secondary markets. When the markets are euphoric, IPOs demand premium valuations, but no one likes an overvalued company in tough times, especially if the profits are low."

May 21, 2022 / 01:37 PM IST
Sonam Srivastava is the Founder of Wright Research

Sonam Srivastava is the Founder of Wright Research

“eMudhra is India’s most significant licensed certifying authority. The company has issued over 50 million digital signature certificates through 88,457 channel partners. But it will list at a PE of 78.81x within a highly competitive industry. So, we advise investors to be cautious,” Sonam Srivastava, Founder at Wright Research said in an interview to Moneycontrol.

Thanks to retail investors, the IPO of Venus Pipes was subscribed 16.31 times on the final day. “We expect the stock to open at a premium. Venus Pipes will be an excellent addition to the listed stainless steel pipes and tubes segment with a strong export presence,” she said.

However, Delhivery’s IPO hardly sailed through, and retail investors barely participated. “We expect the listing to be tepid and damaging as the current market hates high-growth tech stocks with negative earnings,” she said.

Do you think the market has bottomed out after the recent correction, and is ready for a sharp upmove?

The last six months have taught us that picking the market bottom is a futile exercise in adverse macroeconomic conditions. We are at a low point in the market despite a robust economy. Moreover, the rise in inflation worldwide, persistent geopolitical tensions, and worsening conditions in China are some things that still worry investors. Despite the sharp upward rally in the last week, no one can certainly say that the markets are ready to bounce back. These are the times to be cautious and exercise your risk management muscles.

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The telecom space, which is largely a two-player market now, has seen strong growth in ARPUs, especially after the tariff hikes in November last year. Do you expect more tariff hikes in the coming period, and are you bullish on these players?

Both Bharti Airtel and Idea have posted increase in revenues and seen good days after announcing the tariff hikes and ARPU (average revenue per user) growth. Both Gopal Vittal of Bharti Airtel and Ravinder Thakkar of Idea have signalled that more hikes are coming in the next quarter.

Telecom ARPUs have been sustainably low since Jio disrupted the space, and we will see them rising soon. The hikes will help the revenue and EBIDTA numbers of the two players. In this volatile market where rates rise, cash is king, and increasing cash flows won’t hurt anybody. The telecom sector is seeing a structural revival, and the 5G rollout will be exciting. We are watching this sector optimistically.

The IT services space has corrected nearly 20 percent in the recent correction. Where do you see value in this space and should one stick to frontline players instead of mid-caps and small-caps?

The IT services sector is buoyant structurally. But with rising margin concerns from a potential macro slowdown and increased exposure to the US, the industry earning cycle might be in trouble. JP Morgan even downgraded the sector and said that the peak revenue is behind us, and EBIT margins are trending down due to inflation and mean reversion.

We think, IT is a decent bet while the US hikes rates, but the simultaneous debacle in the US markets has discouraged the sector. So, we are cautious here, and sticking to larger players might make sense.

The auto space has been facing issues on the demand as well as supply sides. Should one start taking exposure to the space or wait for the situation to improve?

The auto sector has been surprisingly robust over the last month amid the market decline, which might be due to mean reversion effects or because demand in the industry remains high. The auto sector is struggling on the supply side due to semiconductor shortages while people are still waiting for their cars.

As inflation rises, demand is seen to be impacted, and global forces, especially the China showdown, which shrunk their auto demand by 40 percent, can impact this sector. The sector’s fate would be governed by the inflation numbers and the revival of consumer sentiment. We are not yet buying but watching this sector.

LIC has seen a tepid performance on its listing day. Do you think the stock is still overpriced or is there an issue with the life insurance space as a whole?

The valuations at which LIC got listed were cut from the previous numbers discussed but were still on the expensive side for the old world stock in an industry that is growing more and more competitive and digital. The tepid performance could be due to the broader bearish market dynamics due to inflationary pressures and tight monetary policy.

In addition, insurance stocks across the board are weak as they anticipate lower demand. Therefore, LIC stockholders need to be patient and wait for the market to return.

The BSE IPO index fell more than 30 percent in the last six months. What are your thoughts on the Indian IPO market that has seen several listings since last year, but around 40 percent of them are way below their issue prices, including new-age companies?

The IPO market premium is primarily linked to the sentiment in the secondary markets. When the markets are euphoric, IPOs demand premium valuations, but no one likes an overvalued company in tough times, especially if the profits are low. The new-age companies face the same problem. They might have a long way to profitability, and in such volatile times, no one trusts exorbitant growth projections.

Nevertheless, companies in attractive sectors with good profitability track records and reasonable valuations are still being lapped up by IPO investors. Therefore, we look at the IPO market to keep on bringing exciting companies to the listed space.

What are your thoughts on the IPOs of eMudhra and Aether Industries? Do you expect muted listing for Delhivery, Venus Pipes, and Prudent Corporate?

eMudhra is India’s most significant licensed certifying authority. The company has issued over 50 million digital signature certificates through 88,457 channel partners. But it will list at a PE of 78.81x within a highly competitive industry. So, we advise investors to be cautious.

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Aether Industries is a specialty chemicals manufacturer in India with solid revenue and growth numbers. Given the increasing focus on specialty chemicals in the Government of India's PLI (production-linked incentive) scheme and the China+1 strategy, we see this sector come in flavour soon.

Prudent Corporate Advisory’s shares made a muted stock market debut with profit booking post listing. The stock opened for trading at Rs 660 and quickly slipped below Rs 550 levels. This shows that many investors joined the IPO only for the listing gains.

Thanks to retail investors, the Venus Pipes IPO was subscribed 16.31 times on the final day, and we expect the stock to open at a premium. Venus Pipes will be an excellent addition to the listed stainless steel pipes and tubes segment with a strong export presence. Investors might dump the stocks on listing day to lock-in to the listing gains even after a positive listing.

The Delhivery IPO hardly sailed through, and retail investors barely participated. We expect the listing to be tepid and damaging as the current market hates high-growth tech stocks with negative earnings.

Disclaimer: The views and investment tips expressed by investment 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.
Sunil Shankar Matkar
first published: May 21, 2022 01:37 pm
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