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The initial public offering (IPO) sparkle is all set to brighten the mood on the Street, ahead of Diwali. Retail investors are charged up too to participate in the IPO cheer. This morning, the retail portion of beauty, personal care and fashion e-tailer Nykaa’s Rs 5,350-crore IPO was fully subscribed within a couple of hours of the issue opening.
Valuations of these new age companies are yet to be set in a mould. The IPO of Zomato, with small revenues and huge losses, was oversubscribed. Today, the company’s shares are trading at Rs 134, close to double its issue price of Rs 76. So, it’s hard to tell whether Nykaa’s price band of Rs 1,085-1,115 per share is a fair one.
Retail investors in Nykaa may get confidence from the fact that the who’s who among domestic and foreign investors have participated in its anchor book that totals Rs 2,395 crore. So far, the verdict on the Street is that it has robust technology, market penetration and the choicest brands across the beauty and fashion spectrum. Importantly, it is among the few new-age companies that are profitable at the time of tapping markets. Do read MC Pro Research team’s piece here analysing Nykaa’s valuation and business strengths.
For those who may be experiencing FOMO (fear of missing out) on the IPO blitzkrieg, all is not lost. There are many IPOs lined up in the run-up to Diwali. Over the next fortnight, about a dozen IPOs are set to hit the market with the common thread being that most are new age, digital platform companies. A few familiar names are Fino Payments Bank, Mobikwik, Policy Bazaar and Paytm.
However, there are some points to ponder upon before taking the plunge. While some of these are early entrants in the new world of e-commerce, whether they can sustainably ramp up revenues and earnings is anybody’s guess.
Most Draft Red Herring Prospectuses (DRHPs) run into hundreds of pages that detail market opportunity, addressable market, entry barriers to competition and of course, global benchmarks in valuation. But how long would it take for these factors to pan out into earnings growth? Importantly, are you as a retail investor in the game for listing gains or the long term? It might help read a bit about the good, bad and ugly facts of IPOs here.
Also, borrowing money to invest in IPOs is not really the best thing to do at this point — the flood of public offers guzzling investors’ funds has pushed up interest rates for IPO funding.
Thus, while it’s exciting times in the world of IPOs, it may be worth just watching the display of fireworks rather than be singed while participating.
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