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IPOs trading below issue price are good picks in current market

IPOs trading below issue price are good picks in current market

The stocks on which experts are positive include VA Tech Wabag, Bajaj Corp, IL&FS Transportation Networks, United Bank of India, Oberoi Realty, Man InfraConstruction, Hathway Cable & Datacom and MOIL.

Most people who have invested in initial public offerings, or IPOs, in the last three years have lost money. Shares of two out of three companies which have listed during the period are trading below their issue price. In 2010 and 2011, 112 companies came out with IPOs , out of which 82 are trading below their issue price. However, 2012 was better, as shares of just two out of 17 companies which listed this year are trading below the issue price.

The BSE IPO index, which tracks the value of companies for two years after they list, fell over 37% to 1,300 between 4 January 2010 and 31 December 2011. It has risen 28% to 1,679 this year till November 6.

Rajesh Jain, executive vice president and head, retail research, Religare Broking, says, "The index has risen this year due to change in the market sentiment and the stock market rally from January."

Since January 2012, the Sensex has risen 21% to 18,817. However, between 2010 and 2011, the index fell 12% and was at 15,454 on 30 December 2011.


There are some good options in the list of 84 companies that have hit the stock market since January 2010 and are trading below their issue price. The stocks on which experts are positive include VA Tech Wabag, Bajaj Corp, IL&FS Transportation Networks, United Bank of India, Oberoi Realty, Man InfraConstruction, Hathway Cable & Datacom, PTC India Financial Services and MOIL.

VA Tech Wabag:

VA Tech Wabag is a multinational player in the water and waste-water treatment industry operating in 19 countries. Its main focus is on emerging markets. The company is involved in engineering, procurement and construction (EPC) as well as operation and maintenance (O&M) activities.

Operating profit margin in O&M is a decent 20% compared to 10% in EPC. The order book was worth Rs 4,110 crore on June 30, promising good revenue flow for two-three years. The Chennai desalination project, due for completion in the second quarter of 2013-14, be a big contributor to growth in the domestic O&M segment.

K Subramanyam, assistant vice president, institutional research, Asit C Mehta Investment Intermediates, says, "The company is confident of maintaining its 2013-14 revenue guidance of Rs 1,650-1,700 crore, which translates into 15-18% growth over the year. It is also sure about meeting its order guidance of Rs 2,300-2,400 crore for the financial year. The consolidated earning per share (EPS) for 2013-14 is likely to be Rs 36." On November 6, the EPS was Rs 28 and the stock was trading at Rs 483, 63% lower than the issue price of Rs 1,310.

Bajaj Corp:

The company posted net sales of Rs 274 crore in the first half of 2012-13, up 28% from Rs 213 crore in the same period a year ago. Net profit rose 33% to Rs 76 crore in April-September as against Rs 57 crore in April-September 2011.

Operating profit margin increased to 28.47% from 25.32% in the year-ago period. Margins are expected to improve as the average price of the key raw material, liquid light paraffin, or LLP, fell to Rs 81.43 per kg in the quarter ended September from Rs 85.66 per kg in the same period last year. The company has signed deals to buy LLP at Rs 78.53 per kg in the third quarter and Rs 73 per kg in the fourth quarter. It is aiming for 65% market share in the light hair oil category by 2015-16.

Rakesh Goyal, senior vice president, Bonanza Portfolio, says, "Increase in prices of some products has expanded gross margins. Technically also the stock is showing strength in the near to medium term. It can touch Rs 210-220 in the next few quarters."

IL&FS Transportation Networks (ITNL):

ITNL is the largest road build-operate-transfer (BOT) operator in India. Its portfolio comprises 23 projects spanning 11,860 lane km in 16 states. Of these, 12 projects for 5,453 lane km are already operational.

ITNL's BOT portfolio is a healthy mix of annuity and toll-based projects. While annuity projects provide stability, toll projects facilitate revenue growth from traffic and increase in toll rates. The average pending concession period for projects is 18.1 years, ensuring cashflow stability and giving the company an option to bid for more projects.

is the number of initial public offerings in 2010 and 2011. Out of these, 82 stocks are trading below their issue price.

"The stock is trading at 7.2 times 2012-13 and 5.5 times 2013-14 estimated earnings, which is cheap considering asset quality and revenue visibility. It can touch Rs 260 in the next few quarters," says Ambareesh Baliga, chief operating officer of Way2Wealth Securities. On November 6, it was at Rs 189, 26.72% less than the issue price of Rs 258.

United Bank of India (UBI):

UBI has more than 1,600 branches and offices and a balance sheet of more than Rs 1.5 lakh crore. The bank has been able to maintain a healthy CASA (current account, saving account) ratio, which was 41.4% between 2004-2005 and 2011-12. In the first quarter of the financial year, it was 40%, the highest among peers, which include UCO Bank, Allahabad Bank, Dena Bank and Syndicate Bank. CASA is a source of low-cost deposits and a sign of higher margins.

Mayuresh Joshi, vice president, institution, Angel Broking, says high CASA ratio makes the bank better placed than peers to sustain its net interest margin or NIM.

"We value the stock at 0.6 times 2013-14 estimated adjusted book value; hence, it can touch Rs 79 in the next 6-12 months," he says. On November 6, it was at Rs 64.7, below the issue price of Rs 66.

Hathway Cable & Datacom:

It offers analog and digital cable television in 125 cities and towns, reaching 8.18 million households, besides broadband services.

The stock touched a 52-week high of Rs 249 on October 18. On November 6, it was at Rs 239.3, Re 0.7 less than the issue price of Rs 240. Market experts are bullish on the stock. Jain of Religare Broking says, "It is looking strong on long-term charts and is trading above all important moving averages. Investors may start accumulating on any dip near Rs 220-225 keeping closing stop-loss at Rs 205 for a target of Rs 280 in the coming months."

Man InfraConstruction:

The construction company also provides services for port, residential, industrial, commercial and road projects. It also undertakes projects on BOT and public-private partnership basis.

Experts say after touching a year's high of 228 in April, the stock has retraced 50% and is on the verge of a bounce-back. "It is strongly placed on medium- and long-term charts. Investors may accumulate the stock around Rs 180-185 keeping Rs 170 as a closing stop-loss for a target of Rs 230 to be achieved in the coming months," says Religare's Jain.

PTC India Financial Services:

The company's NIM was 9.07% in April-June 2012 compared to 4.97% in the corresponding period last year and 8.79% in January-March 2012.

The company hopes to maintain NIM in high single digits this year. It has secured external commercial loans of $76 million from which had taken $51 million till June 30. Another drawdown of $25 million was made in July 2012. It is talking to other lenders for funds, which is expected to reduce its cost of funds in the coming quarters.

At Rs 16 on November 6, the stock is trading at a price-to-book value of 0.75. Net sales have been growing at a compounded annual growth rate of over 120% for the last four years.

"Based on the estimated book value of Rs 23.77 for 2012-13 and targeted price-to-book value of 0.97, we expect the stock to trade at Rs 23," says DK Aggarwal, chairman and managing director, SMC Investments and Advisors.


The company is the largest producer of manganese ore in India. Rajnish Kumar, chief executive officer, Fullerton Securities & Wealth Advisers, says due to increase in spending on infrastructure by the government and manganese ore deficit, MOIL is well-placed to increase sales. The stock has the potential to touch Rs 295 in the next few quarters.

During the quarter ended September 2012, the company posted net sales of Rs 242 crore, down 2.3% from Rs 248 crore in the year-ago period. Net profit was at Rs 99.4 crore, a decline of 1.55% from the year-ago period.


Government actions, the performance of the secondary market and global liquidity hold the key to the IPO market. Current market conditions have become favourable for companies planning IPOs, mainly due to initiatives taken by the government and reforms announced by the market regulator .

Companies such as retail chain Spencer's, the satellite TV broadcast services arm of Videocon and Tata Sky are looking to tap the IPO market. Calyx Chemicals and Pharmaceuticals, Madhya Bharat Agro Products, Bharti Infratel and G B Tools and Forgings are some other companies that have filed draft offer documents with the market regulator since September.

In the last two months, the Sensex has risen more than 6%, as foreign institutional investors put in about Rs 30,000 crore. SMC's Aggarwal says besides the festive season, renewed optimism about the market may give companies a reason to go ahead with IPOs.