What was so different about IPOs in 2020?
The first half of 2020 was an IPO drought, with the sole exception of SBI Cards. All other IPOs hit the market in the second half. Despite the bunching of IPOs in H2, year 2020 has seen the second best IPO collections in the last 13 years since the Global Financial Crisis. The only exception was year 2017, when Rs75,000cr was collected via IPOs, largely driven by PSU disinvestments. Year 2020 saw IPO collections of over Rs45,200cr making it the second best year since the crisis. But the real story is captured in the chart below.
We have captured the percentage of IPOs trading at a premium to their issue prices. In the last 10 years, the ratio of profitable IPOs was as low as 17.6% in 2011 and 27.3% in 2012. There was a 100% strike rate of profitable IPOs in 2 out of the last 10 years i.e. in 2013 and then 2020. What is gratifying about year 2020 is that there were a total of 15 IPOs in 2020 and each and every one of them are quoting at a premium to their issue price. In contrast,there were only 4 IPOs in 2013.
What is worth noting about 2020 is that even where the oversubscription has not been too flattering, the stocks are still quoting at a premium to the issue price. As we write, there is the IPO of Mrs Bectors Foods that is still open. But if you look at the heavy demand for the IPO, it looks like one more case of premium listing.
How the IPO story panned out in year 2020
Here is a quick summary of the 15 IPOs completed during year 2020.
(Rs. in crore)
Profit / Loss
|Happiest Minds Tech||166||17-Sep-20||702||150.98X||323.00||94.58%|
For the 15 IPOs that listed in 2020, returns have ranged from 2.62% in the case of UTI AMC to as high as 224% for Burger King. In fact, Burger King listed at a premium of over 100% and then hit 20% upper circuit for 3 days in succession. In the year 2020, there have been 2 IPOs giving more than 200% returns while another 2 IPOs gave more than 90% returns.
There is no established relationship between oversubscription and post-listing performance. For example, 4 IPOs got over 150X oversubscription; Happiest Minds, Chemcon, Mazagon Docks and Burger King. However, for these four companies, the post listing performance has ranged from as low as 26.44% for Chemcon Specialty to as high as 224% for Burger King.
How much wealth did these IPOs created in 2020? The year saw Rs45,283cr raised through IPOs and FPOs. These IPOs have a market value of Rs64,103cr implying IPO value creation of Rs18,820cr. What is more interesting is that 72% of the total wealth created by new issues came from just 3 stocks viz. Yes Bank, Gland Pharma and Burger King. Ironically, Yes Bank issue failed to get fully subscribed.
What drove IPOs in 2020 and the road ahead?
There were many reasons for the phenomenal performance of IPOs in 2020. Firstly, the recovery offered a genuine opportunity for traders and investors via IPOs. Secondly, IPOs offered a more reasonable valuation story compared to expensive frontline stocks. Thirdly, most IPOs in the year tended to price conservatively due to COVID concerns and the result was obvious. Lastly, the decision by some like Burger King to allocate only 10% of the IPO to retail reduced post listing volatility. All these factors played on the 2020 IPO story.
Year 2021 promises to be another bumper year with big names like Kalyan Jewellers and Laxmi Specialty lined up. Of course, if the LIC IPO also happens during the year then it could be a real game-changer for the IPO story in 2021.