Are IPOs for listing gains only? Our research team thinks otherwise

IPOs are for listing gains only!

If you list out some of the most commonly held myths about stock market investing of all times, this may rank amongst the top 5.

The parabolic market rally of the past 16-18 months might have stumped those who took such a myopic view and blindly exited debuting stocks on the day of listing.

Some companies were the best buys even on their debuting day purely going by their post-listing performance until now—IRCTC, Clean Science and Technology, Paras Defence & Space Technologies Ltd. to name a few. Needless to say, these are not recommendations by any means.

We observed another trait in companies listed during pandemic—investors who don’t get IPO allotment tend to chase stocks post listing, irrespective of valuations.

This is another end of the spectrum.

To add to it, Zomato’s blockbuster stock market debut took the IPO frenzy to unprecedented heights.

It has been a confidence booster not only for other startups but also for investors.

Lately, Nykaa received an overwhelming response and the issue got oversubscribed 81.78 times.

Qualified Institutional Investors (QIP) book was oversubscribed 91.18 times and the retail portion witnessed 12.24 times higher bids.

Considering a busy IPO schedule and their valuations it seems that startups are confident of raising money at any valuation. And even investors appear to be okay with paying any multiple as long as these investments fetch profits.

What we think about the present situation in the IPO market?

Neither all newly listed stocks witness runaway rallies and nor do we suggest you chase them post listing.  But why not take a fresh look once the listing fever recedes?

 

Our research team is doing exactly that nowadays.

In the recent past our research team has successfully indentified newly listed companies that went on to register further gains.

For instance, it recommended Stove Kraft on April 27, 2021 at Rs 471 which traded at Rs 1,074 as on November 04, 2021. As you may know, the stock got listed in February 2021 at 22% premium over its issue price.

Our research team has again taken a holistic view of the situation— it’s neither excited about overwhelming listings nor excessively worried about high valuations.  It believes in ditching thorns and keeping the roses.

 

Ventura’s recently released report titled Diwali Picks Samvat 2078 has recommended five stocks of which three got listed in 2021.You will be surprised to know four of them belong to the food, hospitality and lifestyle segment.

What makes us confident about some of the newly listed companies?

If companies such as Nykaa and Zomato are to succeed, three out of five companies recommended in the report are likely to do well in the future.

Consider an idea discussed in the report for instance, Burger King.

It is a Quick Service Restaurant (QSR) company which runs 270 stores at present. It endeavours to increase the store count to 700 by FY26.

Furthermore, Burger King India is gearing up to acquire 85% stake in Burger King Indonesia.

Burger King India is expected to clock a revenue of Rs 1,054 crore in FY22, whereas, the combined revenue of operations in India and Indonesia is likely to expand to Rs 7,000 crore by FY27.

That’s the size of the potential opportunity.

QSRs are not only betting on the in-store footfall to clock higher growth but the revenue maximization is expected to be driven also by takeaways and deliveries. That’s how per-store revenue can be improved.

Therefore, will it be unwise to say that if food delivery companies have any future in India, then QSR companies such as Burger King too stand a chance to shine?

Another company recommended in the report, Manorama Industries, will help you take exposure across several themes, not just food.

It’s the only manufacturer of several value-added, tailor-made products that go in the making of Cocoa Butter Equivalents (CBE).

The company’s products are essential ingredients for the cosmetics industry as well.

Moreover, a unique waste to revenue business model of Manorama Industries allows it to score high on ESG (Environmental, Social and Governance) compliance.

On the back of increasing demand for CBE, the company is expanding its production capacity by 170%. Manorama Industries is recognized as the star export house by the government of India.

It’s noteworthy that Food Safety and Standards Authority of India (FSSAI) has allowed chocolate manufacturers to use 5% CBE from January 2018. Earlier the ceiling was 2.5%.

This gives a lot of revenue visibility to the company from India operations as CBE consumption in India is likely to increase 150% between 2018 and 2022.

 In summary

Don’t take a myopic view on companies that are going public although you may hear diverse view about them.

Some won’t be convinced with their business models, others would have problems with valuations.

But as long as the company managements know what they are doing, the potential market size for companies that are going public these days is huge.

To separate out wheat from chaff, you may want to follow our research coverage regularly.

Our other communication handles such as blog, Youtube, Facebook, Twitter and Instagram may also come handy if you believe in taking well-informed investment decisions.

Have you read our latest coverage on the IPO of Paytm? Our research team believes it is well-placed to reap exciting opportunities in India’s fintech space. Click here to apply for the Paytm IPO. It’s unbelievably easy and takes only a few seconds.

You may also like to read: Public Sector Banks: the joker in the pack?

 

Disclaimer: The blog is for information purposes only and anything mentioned herein shouldn’t be construed as a fundamental reason to buy/hold/sell any stock. Furthermore, the information provided in the blog and observations made therefrom shouldn’t be treated as the extension of recommendations made on the other properties of Ventura Securities.

Please note, Ventura Securities’ Research division recently initiated the coverage on some of the stocks discussed in this article. If you are planning to take any investment decision based on the said coverage of Ventura Securities, we strongly recommend you to read risk factors/disclosures/disclaimers mentioned therein.

We strongly suggest you to consult your financial advisor before taking any decision pertaining to your finances. Asset allocation becomes extremely relevant.

We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:

We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company. We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.

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