The IPO mania continues headstrong into August 2021, a year that is already set to break IPO funding records by estimated raising over Rs 1 lakh crore before the year ends. Per data from Prime Database, 28 companies have already accumulated over Rs 42,000 crore over the last seven months, and around 25 more companies are poised to launch their IPOs over the course of the year. This Includes food delivery behemoth Zomato, whose IPO was oversubscribed almost seven times by retail investors, and upcoming, star-studded IPOs of major fintech giants like Nykaa, Paytm, and more. Currently, 15 start-ups have made it to the 59 and growing unicorn company tally of India in the first half of the year.
Paytm Money provided some insights on the IPO investing and trading patterns traced amongst millennials between the heartening saga of four companies that launched their IPO between August 4-6, 2021, namely Devyani International (largest franchise of Costa Coffee, Pizza Hut, and KFC in India), Exxaro Tiles, Windlas Biotech, and Krsnaa Diagnostics IPO. On a positive note, all these IPOS were generously subscribed, with retail investors pumping in almost Rs 18,150 crore to acquire shares of these companies. According to a report by ET, a total of Rs 1.71 lakh crore were raised against shares worth Rs 2,327 crore.
In the words of Varun Sridhar, CEO of Paytm Money, “The IPO fervor continues with young, millennial investors taking the lead on applications on Paytm Money. With our mission to drive wealth management for Indians, we hope to continue to make the lives of investors easier and bring more convenience for them.” He also detailed the easy functionality Paytm Money is offering to let users apply for IPOs before the actual launch. The “Pre-IPO Open application feature, '' he said “will allow the order to be recorded on Paytm Money’s system, and then sent to the exchange for processing whenever the IPO opens.”
We decode the nitty-gritty of the investor demography behind and guess what, and the young, novice, and more noticeably, increasing women participation takes the lead.
Young Guns
The Devyani International IPO, which enjoys a strong brand connection with the young and intended to raise around Rs 1,838-crore, was oversubscribed 116.69 times and saw the highest share of under-25 investor applications on the Paytm money platform.
What’s more, even regular investors did not shy away from participating in IPOs, with more than 45 percent of pre-existing IPO investors actively taking part in one or more IPO activities last week.
It is perhaps a testament to the rising novice investor participation that the first-time applications jumped to almost 24 percent on the platform, a marginally higher but substantial jump from the 22 percent witnessed during the Zomato IPO.
Another noteworthy trend to understand was that while young investors drove up the volume, with more than 55 percent applications, when it came to actual investable amounts, the average money put in by an investor of age 30 years or more was almost 30 percent higher than their younger counterparts!
As per Nema Chhaya Buch, an independent personal finance strategist, IPO is entirely a valuation game. Hence “retail investors should first think about the offered price v/s value of the company. The determined value should be higher than the offer price, only then will it become a profitable deal. To determine the value of the IPO is not an easy task but what a retail investor can do is look for existing players in the same industry or its nearest substitutes, consequently comparing their P/E (Price to earnings ratio) for clarity. Other ratios to be looked at are Price to Sales, ROE, Net Profit Margin and Operating Profit Margin ratios.”
Less participation from women and Tier-2 cities? Not anymore!
While it is understood that major metropolitan, tier-1 cities will steer the demand, tier-2 cities gave rousing participation figures, an indication of increasing financial awareness across the country. With states like Gujarat, NCR, Maharashtra, UP, and Rajasthan topping the list, and cities like Ahmedabad, Jaipur, Delhi, Surat, and Hyderabad making their way to the top, the platform also reported diversity in IPO participation with people from more than 500 locations across India registering their presence.
And women! In tune with their rising involvement in the markets, women accounted for more than 15 percent of the IPO applications on Paytm Money, a historic 40 percent rise from conventional figures.
Prateek Singh, the founder of LearnApp.com, also mentioned how important it is to visit the management history and most importantly, the financials of the company before investing in an IPO, along with keenly noticing their capital structure, management vision and reading the DRHP (Draft red-herring prospectus) to understand the company fundamentals like their business model, promoter backgrounds, business risks and more.
“As a thumb-rule, it is advisable to check if the sales growth is on a rise, at least for the last three years, in comparison with their peers. While the ROCE (Return on Capital Employed) should be at least 15 percent, the interest coverage ratio should offer solid protection i.e. the EBITDA (Earnings before interest, tax, depreciation, and amortization) divided by the company’s interest cost must be at least more than two times. A healthy uptrend in operating margins is also preferred”, he signs off.
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