Review 2024: 70% of IPOs in 2024 trading above issue prices; Hospitality, Textile sectors see renewed interest

Review 2024: Seventy percent (70%) of the mainboard initial public offerings (IPOs) listed in 2024 are currently trading above their issue prices, with Jyoti CNC Automation leading the way with significant gains, followed by KRN Heat Exchanger and Refrigeration, Premier Energies, Bharti Hexacom, and Platinum Industries, which have all seen increases between 150% and 300%. So far this year, 84 companies have been listed, and before the year’s end, D-Street anticipates nine additional listings, bringing the total to 93 companies in the mainboard sector.

Motilal Oswal Financial Services recently reported that the Indian IPO market has had an outstanding year, with equity issuances in different categories rising by approximately 2.6 times compared to last year. This significant expansion can primarily be linked to the changing characteristics of Indian equities, which are adding new aspects to the investment environment, along with strong capital inflows.

“The contribution of new listings through IPOs to the Indian market capitalization witnessed an uptick of 2.9% vs. 1.4% in CY23. However, it still lags far behind the highs recorded in CY17 (+3.7%) and CY21 (+3.4%),” said Motilal Oswal in its report.

Several stocks, including Enviro Infra Engineers, One MobiKwik Systems, Orient Technologies, Gala Precision Engineering, EPack Durables, Interarch Building Products, and Diffusion Engineers, have seen increases of 100-150% from their IPO prices. On the other hand, JNK India, BLS E-Services, Nova Agritech, Kronox Lab Sciences, DEE Development Engineers, Unicommerce eSolutions, Sagility India, Bansal Wire Industries, LE Travenues Technology, Bajaj Housing Finance, SRM Contractors, Exicom Tele-Systems, TBO Tek, J G Chemicals, Zinka Logistics Solutions, Awfis Space Solutions, and Waaree Energies are currently trading 50% to 100% above their IPO prices.

The laggards include Popular Vehicles and Services, Capital Small Finance Bank, Western Carriers (India), Vodafone Idea, and Akme Fintrade (India), which are trading 30% to 45% below their IPO price.

Three key themes emerged in 2024

Arun Kejriwal, who leads Kejriwal Research and Investment Services, stated that several trends are evident. Last year saw an emergence of numerous new businesses. For example, businesses which were hitherto not listed had IPOs coming from such companies. Whenever there was a novel theme or business type, and management along with merchant bankers put in the effort to clarify the business model, they received a positive response. However, when they failed to adequately explain the business, citing that they couldn’t reveal more details in the documents, potential investors tended to bypass the opportunity. This behavior signifies a clear trend: if individuals do not comprehend the offering, they prefer not to invest to avoid losing money.

To begin with, in cases of overvaluation or when people feel they aren’t being given a fair opportunity to earn money and that others want everything for themselves, I don’t believe that many issues, aside from one or two, have performed poorly. This indicates that most issues have garnered full subscriptions, even though some may not have fared well. For instance, there are instances of subscriptions slightly exceeding 1x. A recent example is Carraro India, which was subscribed at 1.2X mainly because the issue was priced very high and consisted entirely of an OFS, resulting in dissatisfaction among the public.

Moreover, something intriguing is unfolding where, when one company from a specific sector comes forward, several others tend to follow suit. Over the past four to five years, there wasn’t much activity from hospitality companies, but there has recently been a surge of such IPOs (The Park, Juniper Hotels, SAMHI Hotels, and now Ventive Hospitality). The hospitality sector has notably opened up, leading to numerous IPOs from the same industry. This is another trend we’ve observed.

The third trend we’ve identified is in the textiles sector, previously overlooked, now re-emerging with players like Sanathan Textiles entering the market. Textiles is a sector that features over 100 listed companies. However, if you look back over the past decade, Sanathan Textiles appears to be the first new entrant in quite some time.

What can we anticipate for IPOs in the coming year (2025)?

Mohit Gulati, the CIO and managing partner of ITI Growth Opportunities Fund, highlighted that on the main board, he anticipates the momentum to continue into 2025, with several large issues planned for the upcoming year.

“In my opinion, the most important activity impacting the main board issues of 2025 will be the value unlocking from demerged entities that raise capital separately,” added Gulati.

Further, Arun Kejriwal explained that one trend likely to dominate is the increase in the number of companies seeking to raise capital in the market, resulting in a mix of offerings. This means there will be fresh issues, offers for sale, private equity deals, and promoters gradually selling off portions of their stakes as they list their entities. Investors who bought shares a few years ago may also divest part of their holdings. All these various transactions and arrangements will be seen. The consistent underlying theme is that money will continue to be raised steadily from the market.

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decision.