“Our Company does not have a listed peer which is involved in e-commerce business for comparison of performance and therefore, investors must rely on their own examination of accounting ratios of our Company for the purposes of investment in the Issue.” So reads a risk factor figuring in the fine print of Infibeam Incorporation’s draft red herring prospectus.
A similar disclosure, “Our Company is the parent company of the Coffee Day Group which currently operates in businesses such as coffee, development and management of IT-ITeS technology parks, providing integrated logistics solutions, financial services, hospitality and investing in technology companies. We believe that none of the listed companies in India are engaged in a portfolio of businesses similar to ours”, can be found in Coffee Day’s draft red herring prospectus too. While six companies including RBL Bank filed their draft red herring prospectus with the Securities and Exchange Board of India (Sebi) in the recent weeks, these statements broadly speak of the newness of the segments they operate in and also the kind of risk that investors may be exposed to if they choose to invest in them.
The sudden surge in IPO filings has infused a new lease of life into the primary market activity this year. Only 8 firms had launched their initial public offers (IPOs) in last two calendar years. The rise in the public issues comes on the heels of a recent surge in secondary markets, which, defying global uncertainties, clocked gains of over 300 points over the last three trading sessions. However, experts suggest caution for retail investor before investing in the new IPOs.
Other than the RBL Bank, which is into traditional banking business, the remaining five— InterGlobe Aviation, Infibeam Incorporation, Teamlease, Matrix Cellular and Coffee Day — do not fall into regular business categories where Indian retail investors have a benchmark to compare. Hence, investment advisors point that these issues call for a lot more due diligence than required in traditional businesses. There are some who say that retail investors should wait for qualified institutional buyers (QIBs) or institutional investors to invest in the first two days and then decide whether to invest or not.
While Infibeam Incorporation is an e-commerce company that runs Infibeam BuildaBazaar e-commerce marketplace and is eyeing to raise around Rs 450 crore through its public issue, InterGlobe Aviation that operates the leading domestic airline carrier Indigo will launch its IPO to raise around Rs 2,500 crore. Then there are Matrix Cellular — provider of telecom solution to Indians travelling abroad — and TeamLease, a staffing and HR Solutions provider. Both are planning to raise around Rs 500 crore each, while Coffee chain Coffee Day is looking to raise around Rs 1,150 crore through its IPO.
While Indian investors have not had a smooth prior experience with airline stocks and have witnessed their investments either withering away with Kingfisher Airlines or heading nowhere with Spicejet, the idea of another aviation stock does not resonate with many. Even though the domestic carrier saw its nine-month profit for the year ended March 2015 more than double to Rs 960 crore from Rs 471 crore in FY14, it is said that the rise is on account of sharp decline in crude oil prices and resultant softening of aviation turbine fuel cost. A reversal in crude price trend may bring the firm’s finances under pressure. A fund manager with a leading financial services firm said that he would advise against entering an airline company. “I would not chase sectors where the price competition is too high. If they compete on price then it’s difficult to make money on a sustainable basis. Also, I don’t think that the InterGlobe IPO at a PE of 25 is cheap. I would rather buy a company at 30 PE that has sustainable profit and operates in a sector that does not have cut-throat price competition,” he said requesting anonymity.
Infibeam operates in a segment that has no listed peers and therefore investors have no benchmark to compare the company with. It provides cloud-based, modular and customisable digital solutions and other value-added services to enable merchants to set up online storefronts. It also operates infibeam.com, which is an e-retail website and an e-commerce marketplace. In case of Coffee Day, while the company has witnessed its revenues double over the last four years, it has not been able to make profits in any of those years. For the nine-month period ended December 2014, the company announced a net loss of Rs 139.5 crore.
As for Matrix Cellular, experts say that with falling global roaming charges and several social media applications offering free calls, the business model may not be very tempting for investors going forward. Also, a recent report states that European member states, the European Parliament and the European Commission have agreed to end roaming charges beginning June 30, 2017, which only hints that the world is moving towards a single market and such charges will come down. In fact, over the last two years, Indian operators too have brought down the international roaming charges significantly and it is set to go further south.
Should you plan to invest in them
Equity research analysts and investment advisors are not enthused with these companies and their business models focussing only on revenues. “Most of the companies talk of revenues and not of profits. However, unless they make profit I don’t see value for the investor,” said Pankaj Pandey, head of research at ICICIdirect.com. He added that once they enter the next cycle of making sustainable profits then retail investors should look at them as an opportunity to get in.
However, in the absence of a peer comparison for these companies in India, Prithvi Haldea, founder chairman, Prime Database says, investors should take cue from institutional investors who will do the due diligence. “Typically, institutional investors will find peer group comparison abroad and do the due diligence before investing in them. Therefore retail investors should wait for the first two days of the issue period to see how they are investing and follow them accordingly,” said Haldea.
He, however, said that it is not the only thing to check. “Retail investors should verify whether the private equity funds that invested into those firms earlier are fully or partially exiting the company at the time of the IPO. If they are exiting fully then it means that they do not see much upside in the firm,” said Haldea.