What is IPO (Initial Public Offering): Complete guide about Investment Analysis Step-by-step
Everyone wants to earn more money. If you know how IPO analyses, you could be earned more returns from IPO.
This blog will Explain What is IPO? How to invest money in IPO.
IPO stands for initial public offer. When any Private company goes to first-time listing in any exchange that process is called IPO.
Simply, when any company wants first time want money from the public that process is known as IPO.
After the issue of IPO, Company get the capital from the public and is listed in NSE or BSE (National Stock Exchange or Bombay Stock Exchange).
After listing off the share, any investor or trader can trade this stock on the given exchange.
Every year many companies are listed on the stock exchange. In long term, a good fundamental company earns a good return.
This blog will tell you how you could select and invest in the best IPO for the long term as well as the short term.
Detailed explain about various types of risks to invest money in IPOs. Read – 5 best ways to start investing.
Important Terminology uses in IPO
- Bidding: When an investor going to buy a share, he has to select the number of shares and price of IPO, This process is called Bidding.
- Lot size: Group of shares is called Lot size. In IPO, you have to buy a minimum of 1 Lot. Lot differs from different companies. Like Reliance, lot size is 505 shares on another side Burger king IPO have 250 shares in a lot. Approx. 15k or less amount should invest.
- Underwriter: If IPO does not fully subscribe underwrites commit to buy unsubscribe share. An underwriter can be a banker, financial institution, merchant banker, or broker.
- Draft Red Herring Prospectus: In DRHP all the detailed information of IPO is given. The followings contain are in DRHP. Purpose of raising funds through listings
- Balance sheet
- Promoter’s expenses
- Earning statement of the last three years (if applicable)
- Net proceeds of the company
- Commission and discounts of the underwriter
- Details such as the name and address of all the underwriters, officers, directors, and stockholders who possess 10% or more than the currently outstanding stock.
- Legal opinion on the listings
- Copy of the underwriting document.
- Grey market: Grey market is an unofficial market where IPO traded before listing in the Exchange.
- Grey market Premium: The price traded in the grey market known as grey market premium.
- The main objectives are to analyze the performance of IPO’s
- To see the risk and return of the IPO.
- To finding short- term and long term profit/loss of the IPOs
- To see the fundamental analysis of the company that is launching IPOs
“An empirical study on evaluation of IPOs performance on NSE” by Dr Singh Amit Kumar, Shrivastav Rohit Kumar ( 22 June 2017), This paper attempts to evaluate the performance of 152 IPOs introduced during 2010–2016 on NSE.
The paper shows listing day gain and one-month returns evaluation. It was analyzed that on an average 11.998% of day listed gain earned by these IPOs whereas these IPOs posted a loss of 3.78% for one-month return. Out of 152 IPOs introduced on NSE, 63.15% were underpriced and 36.84% overpriced. – Refer
“The Movement of IPOS in Indian Stock Market and IPO Grading” by Sahoo Bibhu Prasad, Kaur Karman (2018), This blog is showing that Long term performance of the higher graded IPO is better than lower graded IPO’s.
However, the IPO Grading is not relevant in explaining the Listing Day returns. Also, IPO grading has no impact on the subscription behaviour of retail investors. By- Indianjournels
This research is focusing on the analysis of the IPO & How to invest money in IPO. Secondary data used to analyze the performance of an IPO. It’s Based on qualitative and quantitative data. All these data were taken from various websites and journals. Excel is used to analyze the data.
Analysis of Initial Public Offering (IPO)
|Historical Performance of IPO|
|Company Name||Listed On||Issue Price||Listing Day Close||Listing Day Gain||Current Price||Profit/Loss|
|Stove Kraft Limited||5-Feb-21||385||445.95||15.83%||506.8||31.62%|
|Home First Finance Company India Ltd.||3-Feb-21||518||527.4||1.81%||550.9||6.34%|
|Indigo Paints Limited||2-Feb-21||1490||3118.7||109.31%||2610||75.16%|
|Indian Railway Finance Corporation Limited||29-Jan-21||26||24.85||-4.42%||25.35||-2.50%|
|Antony Waste Handling Cell Limited||1-Jan-21||315||407.25||29.29%||315.7||0.22%|
|Mrs. Bectors Food Specialities Limited||24-Dec-20||288||595.55||106.79%||391.2||35.83%|
|Burger King India Limited||14-Dec-20||60||138.4||130.67%||149.5||149.17%|
|Gland Pharma Limited||20-Nov-20||1500||1820.5||21.36%||2189||45.96%|
|Equitas Small Finance Bank Ltd||2-Nov-20||33||32.75||-0.76%||46.75||41.67%|
|Likhitha Infrastructure Ltd||15-Oct-20||120||136.6||13.83%||247.7||106.42%|
|UTI Asset Management Company Ltd||12-Oct-20||554||476.6||-13.97%||565||1.98%|
|Mazagon Dock Shipbuilders Limited||12-Oct-20||145||173||19.31%||224.5||54.79%|
|Angel Broking Ltd||5-Oct-20||306||275.85||-9.85%||343.2||12.16%|
|ChemconSpeciality Chemicals Limited||1-Oct-20||340||584.8||72%||450.2||32.40%|
|Computer Age Management Services Ltd||1-Oct-20||1230||1401.6||13.95%||1927||56.67%|
|Happiest Minds Technologies Ltd||17-Sep-20||166||371||123.49%||398.4||140%|
|Mindspace Business Parks||7-Aug-20||275||303.87||10.50%||319.8||16.28%|
|Yes Bank Ltd||27-Jul-20||12||12.3||2.50%||16.4||36.67%|
|Rossari Biotech Ltd||23-Jul-20||425||742.35||74.67%||912.5||114.71%|
|SBI Cards and Payment Services Ltd||16-Mar-20||755||683.2||-9.51%||1021||35.19%|
Data Source: nseindia
All the historical data is showing that the maximum IPO is listed in the premium. If you do an average of all the IPO returns you will get 37.75% approx. return. It doesn’t mean that all the IPOs are good to invest in. But only telling that if you invest in well fundamentally strong IPO you will get a good return. Don’t worry further also explain how an IPO could be analysed & how to invest money in IPO.
Upcoming IPO of 2021
Following companies are coming with IPO in 2021. After proper analysis, we can apply it to those IPOs.
|Issuer Company||IPO Size (Rs.)||Price Band (Rs.)||Issue Date|
|Heranba Industries IPO||NA||NA||23-Feb-21|
|RailTel Corporation IPO||819.24 Cr.||Rs. 93 – 94||16-Feb-21|
|Nureca Limited IPO||100 Cr.||Rs. 396 – 400||15-Feb-21|
|Brookfield REIT IPO||3800 Cr.||Rs. 274 – 275||3-Feb-21|
|Aadhar Housing Finance IPO||7300 Cr.||NA||Mar-21|
|Kalyan Jewellers IPO||1750 Cr.||NA||Upcoming|
|NCDEX IPO||500 Cr.||NA||Upcoming|
|Bajaj Energy IPO||5450 Cr.||NA||Upcoming|
|Lodha Developers IPO||5500 Cr.||NA||Upcoming|
|Montecarlo Limited IPO||550 Cr.||NA||Upcoming|
|LIC IPO||80000 Cr.||NA||Oct-21|
|Power Grid InvIT IPO||7000 Cr.||NA||Feb-21|
|Nazara Technologies IPO||NA||NA||Upcoming|
Data Source: nseindia
Method for Apply an IPO
For applying to an IPO you have to a DEMAT account and PAN card.
We will be recommended to you open your account in Upstox or in Zerodha because brokerage charges are less compared to other brokerage firms.
Method of Analysis IPO
When you are going to buy any IPO you should consider the followings Things:
- You should check the Draft Red Herring Prospectus.
- Check the previous financial condition of the company.
- Select IPO that has a strong underwriter.
- Check where the company is going to invest the IPO amount.
- If you want to earn listing gain from IPO you should check the Grey market Premium.
- If an IPO is oversubscribed it means this IPO would be listed in premium.
- Check the risk factors of the IPO.
Example of how to finding the company to invest money in IPO
|Antony Waste Handling Cell Ltd IPO Analysis
Issue Opens: Dec 21, 2020; Issues closed: Dec 23, 2020; Price Band: 313-315
Antony Waste Handling Cell Ltd incorporated in 2001. It is the second-largest player in Indian Municipal Solid Waste.
It owns a fleet of 1,147 vehicles, of which 969 were equipped with GPS technology. Business activities of Antony Waste are divided into 3 categories. Which are the following:
- MSW( Municipal Solid Waste Management) C&T Project: The work of this project is collecting bins from household and communities.
- MSM Processing project: The work of this project is shorting and recycling the bins.
- Mechanized sweeping Project: Complete cleaning operation is done in this project.
The objective of the Offer
- The main objective of the fundraising to invest money in a waste to energy project to its subsidiary AG Enviro and ALESPL at Pimple Chinchwad in Maharashtra.
- To reduce the consolidated borrowing of the company.
Straight of the Business
- This company is the second-largest player In Indian Municipal Solid Waste.
- Consistent track record of MSW project execution: Antony Waste company has Asia’s biggest processing plant at Kanjurmark, Mumbai which has processed more than 7.63 million metric tons since its inception in 2010 till November 15, 2020 ( Frost& Sullivan Report).
- Diversification of the business: As of November 15, 2020, 18 projects are ongoing. Among 18 projects 14 for MSW( Municipal Solid Waste Management) C&T Project, 2 for the MSM Processing project, and 4 for the Mechanized sweeping Project.
- Growth Opportunity in Municipal Solid Waste Management Sector: Government of India also want to increase the participation of the private company to manage waste. According to the Frost & Sullivan Report MSM management market is 5000cr (in 2020). Which is expected to go 9800cr in 2025. Start invest money in IPO to get good returns.
Swachh Bharat Mission aims to achieve 100% collection, transportation, processing, and disposal of municipal waste across 4,041 cities/towns in the country (Frost & Sullivan Report). At present, only 30-35% of municipal solid waste gets process in India.
Financials of the Company
The financial condition of this company is looking good. Compare to the 2018 data with 2020 revenue and profit after tax (PAT) has increased.
- Antony waste company depends upon the state and central government. If the budget allocation of the MSW project decline that will be an adverse impact on Antony waste company.
- This company is dealing with a limited number of customers.
- The company is going to invest IPO amount in waste to energy project but the company doesn’t have experience in this project.
- The company has required high working capital for doing this business. If the company fails to pay the debt amount that will be an adverse impact on the business.
Investing money in IPO will profitable when you will do proper research in that company. We have to see the risk factor when we did investment in IPO.
When the market bullish at that time IPOs are come therefore we should do a proper analysis. If you want to invest money in IPO in long term you should see the fundamental condition of the company.
But if you want to invest money in IPO for listing gain you should see the grey market premium of the IPO.
- By Prakash Chandra Gupta
(B.com, PGDM Finance)