IPO Frenzy? It’s valuation, stupid!

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Last week IPO Markets witnessed a frenzy. 5 IPOs got listed and 4 out of them gave stupendous returns. This brought concerns that there might be exuberance and why these IPOs witnessed such a historic listing. Well, the answer is valuation. The listing of these IPOs depicted the efficiency of the market.

The valuation ratios of all these IPOs were quite low and that drove the high listing. Here we are considering P/E as the valuation ratio. P/E of a company is considered based on the expected earnings growth of a company and the valuation ratios of peers. We might construe that qualitative factors like corporate governance, competitive advantages and track record of promoters among others also matter. However, all these qualitative factors are ultimately reflected in numbers. With this backdrop in mind let’s look at all those IPOs one by one.

Tata Technologies

FY 23 EPS and closing price of stocks on 1st December 2023 are considered for Current P/E, Median P/E and Average P/E.

Table clearly depicts that P/E of Tata Technologies as per issue price is way below median P/E of its peers. While its earnings growth is higher than the peers. After listing the P/E of company was 78.02. Which is in line with peers. At the same time, company belongs to one of the most revered corporate house. Around 46% of its revenue comes from Tata Motors and JLR. Since they are also group companies, this indicates revenue visibility.

Gandhar Oil

FY 23 EPS and closing price of stocks on 1st December 2023 are considered for Current P/E, Median P/E and Average P/E.

Similar trend is visible for Gandhar Oil. The company is market leader in white oil and has grown at quicker pace than its peers. Still the valuation during issue was way below that of peers. Even after such a bumper listing, valuation seems to be attractive.

IREDA

FY 23 EPS and closing price of stocks on 1st December 2023 are considered for Current P/E, Median P/E and Average P/E.

Valuation at issue price of IREDA was in line with peers and current P/E seems way higher. However the company is in sunrise sector and its earnings growth is way higher than it’s peers. This implied higher listing

Flair Writing

FY 23 EPS and closing price of stocks on 1st December 2023 are considered for Current P/E, Median P/E and Average P/E.

Even in Flair Writing we can see that valuation at issue price was way below that of its peers. After listing also the company’s valuation is way below that of its peers. Although its earning’s growth is below that of peers but we need to consider the fact that FY21 was not a good year and acted as an outlier. Over a longer period (FY17-FY23) the company has grown at a quicker pace then its peers.

Currently, market expects these companies to maintain such impressive growth. So, we need to see whether expectations will manifest or not.