India has seen the highest number of IPOs among Asian countries this year. In the past six months, 46 companies have collectively raised over Rs 97,000 crore via the mainboard IPO route, according to Trendlyne’s IPO dashboard.
However, the IPO buzz in India seems to be fading. A performance check of IPOs shows that the listing and post-listing performance in the second half of 2024 has fallen compared to 2023 and the first half of 2024. In the case of IPOs like Hyundai Motors, retail and non-institutional subscription levels have declined, reflecting reduced investor enthusiasm.
Moreover, quite a few of the mainboard IPOs (about 42%) of the ongoing quarter have listed at a discount. The average listing gains of the IPOs during this quarter is slightly over 16% compared to average listing gains of 33.8% last quarter. The tepid IPO market appears to be caused by various factors ranging from valuations to market sentiments.
Large issue-size IPOs struggle perform post-listing
On October 15, India saw its biggest IPO ever, with Hyundai Motors India raising Rs 27,870 crore. The world's third-largest automotive original equipment manufacturer (OEM), made its market debut at a 7.2% discount to the issue price. Analysts believe that there were two reasons behind this dull response. First, this was a 100% Offer for Sale (OFS) by the parent company, which did not sit well with retail investors since no fresh funds were being infused into the business. Second, the upper price band for the IPO was set at Rs 1,960, implying a valuation of 26 times the projected earnings per share (EPS) for FY24 and approximately 30 times EPS for FY25, which exceeds the auto industry average P/E ratio of 24x. Market-changing technology is rare in the auto sector, which limits aggressive growth forecasts
Swiggy's Rs 11,327 crore listing was another highlight, becoming the second-biggest IPO of the year. The food delivery giant made its market debut with a 16.9% premium, but has fallen since listing and is currently trading at a premium of 7.8% over its issue price. The profit booking by investors looking for IPO gains and a high valuation gap (at the time of listing) have contributed to this decline. Additionally, the company has struggled with consistent net losses since its inception. For the fiscal year ending March 31, Swiggy reported a loss of Rs 2,350.24 crore, a reduction from Rs 4,179.30 crore in FY23 and Rs 3,628.89 crore in FY22.
Cement and construction companies suffer the biggest losses post-listing
Cement and construction companies, Afcons Infrastructure, Deepak Builders & Engineers and Garuda Construction and Engineering also launched their IPOs this quarter. However, the performance of these listings has been largely disappointing.
Deepak Builders & Engineers made its market debut at a 20.2% discount. The poor performance of the IPO can be attributed to a cautious market outlook. In contrast, Garuda Construction & Engineering and Afcons Infrastructure had a more promising start, debuting at a 12.5% premium and 2.4% premium, respectively. However, Garuda’s stock is currently trading at a discount of 12.8%. Despite a strong order book and a diversified project portfolio, Garuda's performance is vulnerable to the cyclical nature of the construction industry and ongoing market volatility, which likely impacted its stock value.
KRN Heat Exchanger and Waaree Energies are the best-performing IPOs of the ongoing quarter
Among all the IPOs launched this quarter, KRN Heat Exchangers and Refrigeration and Waaree Energies stand out for delivering positive returns. The commercial services company got listed at an impressive 117% premium and is currently trading at a premium of 238%. Whereas, Waaree energies, a consumer durables company made a strong debut, listing at a premium of 55.6% and currently trading at an impressive 96.6% premium to its issue price.
Waaree is also expanding its global reach by setting up a 3 GW manufacturing facility in the United States to cater to rising international demand for solar energy. In FY24, the company reported the second-highest operating income among domestic solar PV module manufacturers in India. Waaree also reported a 69% year-on-year revenue increase, reaching Rs 11,398 crore, while its profit after tax more than doubled to Rs 1,274 crore.
The recent downturn in India's IPO market is part of a broader trend affecting the equity markets. Both the Sensex and Nifty have entered a correction phase, with declines exceeding 10% from their recent highs. This decline has been driven by continued selling by foreign institutional investors (FIIs) and muted macro numbers. In November alone, FIIs withdrew Rs 22,420.3 crore, contributing to a total outflow of Rs 1.2 lakh crore since Nifty peaked in September. Additionally, rising US bond yields, weak corporate earnings, and ongoing global economic uncertainties have further soured market sentiment.
