IPOs FY23: Not as good as expected, not as bad as feared

3 Apr 2023 , 09:48 AM

FY22 saw more than Rs.120,000 crore collected through IPOs but it was just about 53,338 crore the fiscal year FY23. In all, there were 37 IPOs that have closed in FY23 and all of them are also already listed. FY23 was a year when the SME IPOs dominated the mainboard IPOs. The IPO story for FY23 was not as good as expected; but it was also not as bad as apprehended.

Big story of IPOs in FY23

If one looks at the IPO data for FY23, there are some interesting takeaways that emerge from the data. Here are a few of them.

1. A total of 37 IPOs closed for subscription in FY23 and all of them were also listed. This is lower than the 53 IPOs in FY22. The collections through the IPO route, at Rs53,338 crore in FY23 was less than half of the IPO flows in FY22. 

    

2. Out of the 37 IPOs, 24 IPOs have given positive returns as of the close of March 2023 while 13 IPOs are in the red. Ironically, 8 out of the 13 IPOs giving negative returns were concentrated in the months of November 2022 and December 2022.

    

3. The total IPO collections for FY23 stood at Rs53,338 crore. Against that, the total amount for which applications were received were to the tune of Rs539,151 crore. That translates into an overall subscription of 10.11 times and shows good market appetite.

    

4. The largest IPO of LIC during the year was worth Rs21,008 crore followed by Delhivery Ltd at Rs5,235 crore. Out of the 37 IPOs during 2022, these 2 IPOs alone accounted for 49% of the total funds raised through the IPO route. Digital IPOs were badly missed.

It was a tough year, but amidst the uncertainty, the IPO market did show a lot of resilience. The IPO market was not really as bad as was originally apprehended.

Stars and laggards of IPO market in FY23

Let us now turn to the best and worst performing IPOs of fiscal year FY23 based on post-listing returns. For simplicity, we will not be annualizing these returns and just focus on the absolute returns. This may favour earlier IPOs, but that is an acceptable risk.

Company Name	Issue Close	Issue Size (Rs. Crore)	Subscription (X)	Issue Price (Rs.)	CMP (Rs.)	Returns (%)
Hariom Pipes	05-Apr	130.05	7.93	153.00	475.00	210.46%
Venus Pipes	13-May	165.42	16.31	326.00	755.00	131.60%
Kaynes Technology	14-Nov	857.82	34.16	587.00	956.00	62.86%
Archaean Chemicals	11-Nov	1,462.31	32.23	407.00	645.25	58.54%
Global Health	07-Nov	2,205.57	9.58	336.00	524.10	55.98%
Aether Industries	26-May	808.04	6.26	642.00	936.00	45.79%
Rainbow Children	29-Apr	1,580.85	12.43	542.00	730.00	34.69%
Dreamfolks Services	26-Aug	562.10	56.68	326.00	428.05	31.30%
Prudent Corporate	12-May	538.61	1.22	630.00	807.55	28.18%
Paradeep Phosphates	19-May	1,501.73	1.75	42.00	50.55	20.36%

Data Source: NSE (CMP as of close of 31st March 2023)

During the year, there were only 2 IPOs that delivered above 100% returns viz. Hariom Pipes and Venus Pipes. However, the positive takeaway is that the top 10 IPOs have all given positive returns of over 20%, purely on a point to point basis. Let us now turn to losers.

Company Name	Issue Close	Issue Size (Rs. Crore)	Subscription (X)	Issue Price (Rs.)	CMP (Rs.)	Returns (%)
Tracxn Technologies	12-Oct	309.38	2.01	80.00	65.30	-18.38%
Tamilnad Mercantile Bank	07-Sep	831.60	2.86	510.00	410.90	-19.43%
Abans Holdings	15-Dec	345.60	1.10	270.00	210.00	-22.22%
KFIN Technologies	21-Dec	1,500.00	2.59	366.00	281.00	-23.22%
DCX Systems	02-Nov	500.00	69.79	207.00	144.30	-30.29%
Delhivery Ltd	13-May	5,235.00	1.63	487.00	329.70	-32.30%
Inox Green Energy	15-Nov	740.00	1.55	65.00	39.60	-39.08%
Dharmaj Crop Guard	30-Nov	251.15	35.49	237.00	140.00	-40.93%
LIC of India	09-May	21,008.48	2.95	949.00	535.00	-43.62%
Elin Electronics	22-Dec	475.00	3.09	247.00	120.30	-51.30%

Data Source: NSE (CMP as of close of 31st March 2023)

Out of the 10 top losers for the year, 6 IPOs fell more than 30% while 8 IPOs fell more than 20%. Ironically, two of the biggest IPOs of the year viz. LIC of India and Delhivery Ltd are in the bottom 5 performers of the year. That has dented overall IPO returns and IPO returns as well as sentiments for most part of the year. We shall see that in detail later.

Was there a link between subscription level and performance?

What was the driver of outperformance or underperformance in FY23? An intuitive explanation is that higher subscription levels guarantee good performance post list. But is that really the case? 

• If you look at the top 10 IPOs in terms of returns, only Dreamfolks Services had more than 50X subscription levels in the IPO. Out of the top performers, 5 of the 10 top return giving IPOs had single digit subscription of less than 10X. What about losers?

   

• Among the 10 biggest IPO losers in terms of returns, 2 IPOs viz. DCX Systems got subscribed 69.79 times while Dharmaj Crop Guard was subscribed 35.49 times. So, the link between subscription levels and listing returns appears to be tenuous, at best.

   

• It is perhaps the median subscription that makes the difference. For FY23, the median subscription was 5.85 times. Now if you look at the return leaders, 8 out of top 10 had subscription above the median. In contrast, if you look at the top losers, 8 out of bottom 10 had subscription levels below the median. That, probably, explains the linkage.

To sum it up, the probability of good or bad returns is best judged by subscription versus the median. Otherwise, there is no direct linkage between subscriptions and returns. To rub the irony in, two stocks got undersubscribed in the IPO and both are trading comfortably above their IPO price. 

Did the size of the issue really matter to IPO returns?

That judgement is likely to be clouded by the fact that two of the largest IPOs of FY23 viz. LIC and Delhivery are among the bottom 5 in terms of returns. But, is that reflective of the overall trend. If you look at the top 10 IPOs in terms of returns, 4 are above Rs1,000 crore. 

If you look at the returns table of IPOs for FY23, the large issues are literally spread across the returns spectrum and there is no hard and fast linkage between size and returns. At the end of the day, it boils down to pricing of the IPO and how much the company and its investment bankers leave on the table for investors.

Were Indian investors better off investing in IPOs in FY23?

If you look at it quantitatively, 24 out of the 37 IPOs or 65% of the IPOs have given positive returns. Also, in FY23, the subscription to IPOs overall stands at over 10.11 times indicating healthy appetite for IPOs. But, let ask a more pertinent question; what would have happened if the investor had just allocated equal amounts to all IPOs?

On an overall investment, the investors would have seen negative returns of -12.43% from the IPOs for FY23; which is far from impressive. However, if the investor had skipped LIC and Delhivery, the IPO portfolio returns would have been a positive 7.92%. That may sound like wishful thinking, but the moral of the story is that it was LIC and Delhivery that caused most of the negative returns for IPO investors in FY23. It is, perhaps, a word of caution about chasing highly fancied and high profile IPOs.