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    Friday , May 13, 2016


   Publication: The Hindu Business Line , Agency:
   Edition: Pune/ Delhi/ Hyderabad/ Ahmedabad/ Kolkata , Page No: 13 , Location: Top Center , Size(sq.cms): 390

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Tepid IPO performance, prelude to big losses: study
Most companies that saw hiccups before listing continue to disappoint fundamentally
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Rs 262.47 crore, compared to Rs 74 crore in the same period last year. Since 2010, Claris' perform­ance has been slipping. In FY16, the company's sales declined 5 per cent to Rs 738.87 crore, incur­ring a net loss of Rs 58 crore com­pared to a profit of Rs 149.48 in FY15.
Prime Focus provides end-to-end creative services, technology products and services, produc­tion services and post produc­tion services to studios, broad­cast and advertising industries. Very few media related compa­nies are doing well fundamental­ly. Similarly, Claris Lifescienes has faced quality issues in the past.
"The promoters as well as mer­chant bankers have to under­stand market appetite and justi­fy the price," said Manish Bhatt, Vice-President, primary markets division at Prabhudas Liladher.
A few winners
Prabhat Dairy had to do all three — cut price band, extend issue closure by three days and halve the offer-for-sale portion in Sep­tember 2015, mainly due to poor
market conditions. Nifty 50 had crashed by 7 per cent in August on account of the China yuan de­valuation move which had rocked the world markets.
The trailing three quarter per­formance remains a concern as net profit witnessed a decline of 14 per cent y-o-y. Sales growth has been strong at 20 per cent and not a big concern. But profit­ability has improved in the De­cember 2015 quarter after declin­ing at a drastic rate in the previous two quarters.
Whether this will be sustaina­ble remains to be seen. Parag Milk Foods has seen better ac­ceptance by analysts than Prab­hat during the IPO as the former has better brand visibility and presence. Despite this, Parag Milk also had to revise the price band and extend date of closing of the IPO. This has happened for the first time in 2016.
Ortel Communications' finan­cial performance in FY16 has been better than in FY15 when it got listed. The company report­ed revenue growth of 21 per cent and net profit has more than doubled to Rs 11.93 crore.
as they have been doing relative­ly better than the rest. Hence, in­vestors have rewarded them on the bourses. While Ortel's share price is marginally above its is­sue price (3 per cent), Prabhat's stock price is lower by 8 per cent.
Factors involved
"Why a particular company had to tweak its IPO depends on in­ternal and external factors, in­cluding who the merchant bank­er was, how they marketed the company to institutional inves­tors, broader market conditions and risk appetite of investors during the IPO," said Sharad Awasthi, Head of Research at Spa Securities.
For example, Reliance Power and Adlabs Entertainment wit­nessed different responses dur­ing their IPOs with the former being a super-hit (61.5 times oversubscription) and the latter being tepid (l.i times) despite both being in a long-gestation period business. Concerns about
Mumbai.May 12
Majority of companies that have struggled to attract investor in­terest during their initial public offering period continue to dis­appoint investors.
Cut in price, issue size
Over the last decade, 15 compa­nies have cut the price band and extended the issue closure date due to poor response from inves­tors, according to data provided by Prime Database. Five compa­nies have had to cut their IPO is­sue size.
Of these, fundamentals of 17 companies continue to be weak, according to Capitaline. They are either making struggling on the topline or on the bottomline fronts. As a result, they have also been significant value de­stroyers. For example, Sancia Global, is now trading at 99 per cent lower than the issue price
Prabhat Dairy and Ortel Com­munications are the exceptions
Adlabs seem to be genuine. In the trailing 12-month period ending December 2015, Adlabs' sales jumped 34 per cent year-on-year but net losses continued to be around Rs 106 crore.
Sustainability issue
Some companies had to revise their IPO terms despite good per­formance, either due to chal­lenges in sustainability of the company's business model or high valuation expectations. During the IPO in June 2006,
Prime Focus was doing well with 27.5 per cent and 70 per cent rise in sales and net profit respective­ly in FY06. In the year of its list­ing in 2010, Claris Lifesciences' sales and net profit grew at a compounded annual growth rate of 8 per cent and 19 per cent (2007-2010).
However, performance of both companies has slipped. Prime's sales in trailing the 12-months ending December 2015 jumped 66 per cent y-o-y but the compa­ny's net losses have widened to
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Date: Friday , May 13, 2016
Publication: The Hindu Business Line
Edition: Pune/Delhi/Hyderabad/Ahmedabad/Kolkata, Page No: 13, Location: Top Center, Size(sq.cms): 390