IPOs, like any financial asset, are governed by the laws of supply and demand. That said, the Indian IPO market is booming. From January to September 2023, the Indian stock market was ranked the leading stock market worldwide[1].
To ensure you take advantage of this opportunity, read on to learn about recent IPOs and what to look out for before investing.
Recent IPOs
| IPO Name | Issue Price | Listed Date( 2023) | Open | Close | Current Market Price |
| Vivaa Tradecom | 51.00 | 12th Oct | 40.80 | 42.54 | 31.31 |
| City Crops Agro | 25.00 | 10th Oct | 25.50 | 25.42 | 21.48 |
| Sunita Tools | 145.00 | 11th Oct | 155.00 | 147.25 | 120.00 |
| Rishabh | 441.00 | 11th Sep | 460.00 | 442.75 | 485.45 |
| Kahan Packaging | 80.00 | 15th Sep | 167.58 | 159.60 | 101.00 |
The IPO Evaluation Process
The initial evaluation of a company’s IPO is done by its underwriters (investment banks). The process goes:
- The underwriters review the company’s financials, ability to generate revenue and other key aspects like management, industry and risks.
- The data is assessed over a specific period and sent for an audit.
- Once the audit is complete, a price is determined and a prospectus is created.
- The prospectus is filed and registered with the Securities and Exchange Board of India (SEBI) and stock exchanges.
For a fair evaluation, the underwriters will consider the company’s potential for growth, demand for shares from investors and how their shares compare to those of their industry peers.
Key Metrics for IPO Evaluation
As an investor, you will almost completely depend upon the company’s Red Herring Prospectus (RHP). During the evaluation process, look into:
- The Company’s Financial Robustness: Look into past performance like revenue and profit, margin profiles and return ratios and how they compare to their industry peers.
- Pending Legal Cases: The Risk section in the prospectus will list pending legal cases against the company. If the company has too many lawsuits, it may be best to withhold from investing.
- Price of the IPO Offer Compared to its Peers: Sometimes, markets will hike up the IPO offer price. Hence, always compare the price with that of industry peers. If so, you can buy stocks later when the price drops/corrects.
Institutional Bidding: Check how much institutional investors like fund houses invest in the IPO and if private inventors exit the company at the time of the IPO. Investors might not see a bright future for the company if the external and internal response is weak.
Revenue and Profitability
Check the company’s financials, i.e., its revenue growth, net income, profit margins and how much debt it has. The data under these aspects over 5 years should show how profitable the company has been and can indicate how it will perform in the future.
Also, check the debt-to-equity ratio, price-to-earnings ratio, price-to-book ratio and return on equity. They can help reduce risk and increase the probability of good returns.
Growth Prospects
Look into what the company plans to do with the money raised with the IPO. Check if the money will be used for further company expansion on par with its industry peers. If the company has a lot of debt, steer clear.
Also, check its core business model, current and future competitors, competitive advantages, and investment strategies.
Conclusion
Before investing in IPOs, thoroughly analyse the company. After all, stocks will only perform as well as the company does. If you are new to this, consider investing in secondary markets first. You can look into recently closed IPOs and invest in their company stocks instead.
