Shares of Vadodara-based fruit drinks maker Manpasand Beverages had a lackluster listing last month following the INR400-crore initial public offering (IPO) which was panned for its steep valuations by several analysts. The IPO, however, witnessed strong demand from retail investors, leading to a subscription of 1.16 times in the retail category and an overall subscription of 1.39 times.
The only investor class that stayed away from the issue was high networth individual (HNI) segment which received only 38% bids of the allotted quota. This is understandable given the skepticism among analysts regarding the prospects of the IPO.
Following the tepid debut, the stock demonstrated signs of recovery and closed the day with marginal gain of 1.9% over the allotment price of INR320 per share. In the subsequent days, the stock continued to recover as selling pressure abated. By the end of the first week, the stock was up 2.55%, closing at INR328.15 per share. However, the stock surged in the subsequent weeks. By the end of fourth week, the stock rewarded investors with 22.8% returns.
By the end of 45 days, the stock jumped 34.4% above the issue price. We believe 45 days is a reasonable timeframe for the selling pressure to subside and for the market to discover the true value of an enterprise. Initial days following the listing are usually marked with intensive selling by investors which get in for listing gains. This selling pressure removes weak hands from the market. Another bout of selling comes at the end of 30 days from allotment when the restriction on anchor investors goes away. In this light, the stock’s performance has been remarkable.
Also Read: Plenty to like in Manpasand Beverages IPO
Manpasand Beverages’ success is indicative of two trends in the Indian IPO market this year. First is that merchant bankers and promoters aren’t leaving money on the table. Second, IPO investors are fine with this dangerous arrangement. Manpasand Beverages’ net sales grew at a CAGR of 85.29% from fiscal 2012 to fiscal 2014, while EBITDA and profit after tax surged at an average of 78.63% and 83.68% respectively during the same period. The company counts SAIF Partners and Aditya Birla Private Equity among its investors. Presence of the two prominent PE players and their non participation in the IPO was a clear sign that the PE firms are hoping for more gains.
Despite the merits in Manpasand Beverages’ business model, it can be risky for small investors to blindly apply in IPOs, especially when the markets are in the overbought zone.