Upcoming IPOs look overpriced compared to their listed peers
Firms looking at announcing their IPOs will now either have to wait for a better time or will have to scale down pricing expectations. What is an Initial Public Offer?
By TNN |
With the secondary market crashing, the prospects of the primary market don’t look better. This is well reflected in the mood existing in IPO meets organised by the companies since the crash. Those on the dais now wear a somber look, far cry from the happy and gung-ho disposition they sported earlier. After the recent crash, every IPO appears to be over-priced against its listed peers.
Big-ticket IPOs of IRB Infrastructure, Wockhardt Hospitals and Emaar MGF will hit the street over the next week. A comparison of the P/Es asked by them against P/E of their peers throws some unbelievable details. IRB Infrastructure is soliciting almost double the P/E than its peer L&T. Wockhardt Hospitals is coming across almost 10 times costlier than Apollo Hospitals. The same is the case when one compares Emaar MGF with its real estate peer DLF.
Take IRB for instance, which is opening for subscription on January 31, 2008. The promoters are asking for a price-earning multiple of over 70, based on estimated earnings for FY08. Two weeks ago, this P/E multiple would have been considered normal. But the sharp market correction in the past 7 trading sessions have nearly halved the P/E multiples of its listed peers. And the issue now looks highly over-priced. Not surprisingly, the promoters were reluctant to speak or take reporters’ queries at the IPO meet on Monday.
Commenting on the pricing logic of the issue, the company’s invest banker said: “The issue price was decided around a week ago and at that time no one was expecting the a sharp correction in the stock markets. Anyway, we feel it’s a top quality issue with strong financials and offer strong long-term growth prospects.” But how much the investors will now be willing to pay for IRB’s long-term growth is to seen.
After burning their fingers in the secondary market, investors are quite likely to act cautiously. In case these IPOs get poor response, other companies may look at withdrawing their IPO plans.
The mega IPO of Reliance Power followed by the crash in the markets seems to have left the investors high and dry. Investors at this juncture are not likely to be allured by inflated projections. They would rather hunt for value in the secondary market instead of blocking their money in the primary markets.
Companies looking at announcing their IPOs will now either have to wait for a better time or will have to drastically scale down their pricing expectations.
Big-ticket IPOs of IRB Infrastructure, Wockhardt Hospitals and Emaar MGF will hit the street over the next week. A comparison of the P/Es asked by them against P/E of their peers throws some unbelievable details. IRB Infrastructure is soliciting almost double the P/E than its peer L&T. Wockhardt Hospitals is coming across almost 10 times costlier than Apollo Hospitals. The same is the case when one compares Emaar MGF with its real estate peer DLF.
Take IRB for instance, which is opening for subscription on January 31, 2008. The promoters are asking for a price-earning multiple of over 70, based on estimated earnings for FY08. Two weeks ago, this P/E multiple would have been considered normal. But the sharp market correction in the past 7 trading sessions have nearly halved the P/E multiples of its listed peers. And the issue now looks highly over-priced. Not surprisingly, the promoters were reluctant to speak or take reporters’ queries at the IPO meet on Monday.
Commenting on the pricing logic of the issue, the company’s invest banker said: “The issue price was decided around a week ago and at that time no one was expecting the a sharp correction in the stock markets. Anyway, we feel it’s a top quality issue with strong financials and offer strong long-term growth prospects.” But how much the investors will now be willing to pay for IRB’s long-term growth is to seen.
After burning their fingers in the secondary market, investors are quite likely to act cautiously. In case these IPOs get poor response, other companies may look at withdrawing their IPO plans.
The mega IPO of Reliance Power followed by the crash in the markets seems to have left the investors high and dry. Investors at this juncture are not likely to be allured by inflated projections. They would rather hunt for value in the secondary market instead of blocking their money in the primary markets.
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Companies looking at announcing their IPOs will now either have to wait for a better time or will have to drastically scale down their pricing expectations.
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