A total of eight initial public offerings hit the market so far in the first half of 2019, lowest in terms of number and value of IPO’s since 2015. This shows a continuation of muted investor sentiment for IPOs from the fiscal year 2018-19, when just 14 IPOs hit the market, which was the lowest since the fiscal year 2014-15 and much lower compared to 45 in the fiscal year 2017-18.

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In 2019 so far, approximately Rs 5500 crore has been raised via the IPO route, which represents one-fourth of the amount raised via IPO route in 1H2018 and half the amount raised in 1H2017.

Solid performers in 2019 from IPO price

On the positive side, five out of eight IPOs have given healthy returns in 2019 so far. Neogen Chemicals, Rail Vikas Nigam and Ploycab India are among the top performing IPOs so far.

Neogen Chemicals: The star performer

Neogen Chemicals has been a star performer, with a 69 percent return from IPO price in 2019 so far. Neogen Chemicals IPO was oversubscribed a whopping 41 times. The IPO issue price was valued at ~20.1x FY18EV/EBITDA and ~47.8x P/E but still got a solid response as the market believed the higher multiple is justified given the company’s ability to grow profitably and command better return ratios.

Over FY15-18, the company reported revenue, EBITDA and PAT CAGRs of respectively ~22%, 26% and 30%. Its EBITDA margin expanded 244bps over FY14-18 to 18 percent. Additionally, Neogen Chemicals is well placed considering its specialized business model with high entry barriers, a large and diverse array of products and diversified customer base

Polycab India

Polycab India is the largest manufacturer in the wires and cables industry in India. At the IPO price band, the stock was available at a price to earnings multiple of 22x FY18 EPS, which was fair given its industry exposure. What was impressive was its attractive return ratios of RoCE 21 percent and RoE of 16 percent making it a consensus ‘SUBSCRIBE’ for market enthusiasts. The Polycab India IPO was oversubscribed by nearly 52 times and gave solid listing gains ending on day 1 with a 21 percent return. However, the stock is now trading at a 5 percent discount to its listing date close price. So as always timing is everything in this market.

Rail Vikas Nigam: A Positive Surprise

RVNL is engaged in the business of mobilization of financial resources, rail project development, enhance golden quadrilateral and port connectivity by implementing rail projects and raise extra-budgetary resources for Indian Railway project execution. The RVNL IPO was subscribed sub 2x but has come as a surprise positively.

RVNL IPO was priced reasonably and at a discount to its closely listed peer Ircon International, which generated some interest in the company. Being a public sector unit, the RVNL IPO has been a positive surprise, though most brokerages believed it could be a good long term bet but it has given solid returns in the short term itself as the stock is up 46 percent from listing price. The key reasoning for the strong subscribe rating was the government focus on rail infrastructure spends, healthy order book, asset light model and reasonable valuation.

KPR Agrochem IPO withdrawn at the end of June. Will 2HCY2019 see more IPO offerings?

Broader market sentiment has been dented in 2019 so far, with the midcap and small cap space sitting with negative returns and underperforming the frontline indices. Post the favourable Lok Sabha election results, other headwinds have cropped up like liquidity issues, weak auto sales data and the looming risk of rain deficit.

Recent causality to shy away from the IPO market was KPR Agrochem as they withdrew their planned 283 crore IPO on June 27. Now it remains to be seen if the IPO market bounces back in the second half of 2019.

First Published:Jul 1, 2019 3:17 PM IST