Top 10 IPOs in the last decade: Salasar Techno Engineering Ltd, Apollo Microsystems Ltd, Astron Paper & Board Mill Ltd

In the last few years, most companies that have come out with IPOs have got a good subscription. However, in some cases, the subscription numbers have reached crazy levels. Earlier, if a company IPO got oversubscribed more than 50 times, it would raise eyebrows. But, these days, 50x seems to have become normal. In this article, we have analysed the subscription numbers of the top 10 companies. The last company on the list got oversubscribed by 150 times. 

Before we get to the analysis of these companies, let us understand what an IPO is.

What is an IPO?

When a private company offers its shares to the general public for the first time, it is known as Initial Public Offering (IPO). During the IPO process, the company's shareholding gets broad-based by adding many diversified shareholders. The new shareholders participate in the IPO to become company stakeholders and benefit from the company's growth.

How does an IPO work?

During the IPO process, the company announces certain details, such as:

• Shares offered: The total number of shares being offered along with quota break-up for Qualified Institutional Bidders (QIBs), Non-Institutional Investors (NIIs), and Retail Investors (RIs).
   
• IPO schedule: Mentions the IPO open date and IPO close date. It may include tentative dates for allotment, initiation of refunds, credit of shares to demat account, and listing date.
   
• IPO price band: States the price range within which investors can submit IPO bids.
   
• Market lot: Includes the minimum number of shares that can be applied for. An application can be made for one lot or in multiples.

Once the IPO closes, the allotment of shares is finalised. The bank accounts of allottees are debited with the subscription amount. The demat accounts of allottees are credited with the shares. On the listing date, the shares start trading.

That was how the IPO process works, in a nutshell. Now, let us see the subscription numbers for some IPOs.

Related: Is your IPO rightly valued?

Most oversubscribed IPOs

In the last few years, some companies have seen a huge demand for their shares, leading to the IPO issue getting oversubscribed many times. Let us take a look at the top companies in this regard, and some stragglers as well.

Most oversubscribed IPOs

(Source: https://www.moneycontrol.com/ipo/ipo-historic-table?classic=true)
Note: The data is as on 13 August 2021

Related: What to keep in mind when investing in an IPO?

A brief analysis of performance

Based on the listing gains and the current gains, the above companies can be categorised into three brackets:

• Wealth creators: Companies that listed at a good premium and further created wealth. The biggest wealth creators include Happiest Minds Technologies Ltd. and Central Depository Services (India) Ltd (CDSL). Other companies in this category include Amber Enterprises India Ltd, Salasar Techno Engineering Ltd, Burger King India Ltd, and Mazagaon Dock Shipbuilders Ltd.
   
• Steady performers: Companies that listed at a premium and have given up some of their listing gains, but are still trading above the issue price. The companies in this category include Astron Paper & Board Mill Ltd. and Mrs Bectors Food Specialities Ltd.
   
• Wealth destroyers: Companies that listed at a premium and have given up all gains, and are currently trading at a discount on the listing price. Examples are Apollo Microsystems Ltd, Capacite Infraprojects Ltd, and Ujjivan Small Finance Bank Ltd.

Next, let us look at the background of three of these companies in detail:

Happiest Minds Technologies Ltd.

This is one of the biggest wealth creators, multiplying investor wealth by 7.4 times since its listing. It provides software services with a focus on digital IT services. Due to the lockdowns, digital IT services have seen a huge demand, leading to Happiest Minds getting new clients and new projects from existing clients. As a result, the company has seen good growth in revenues and profits with a good order book.

Central Depository Services (India) Ltd (CDSL)

Following close behind is CDSL, which multiplied investor wealth by 7.36 times since its listing. The company provides various depository services such as dematerialisation, demat account opening, pledging, etc., for depository participants. It also provides KYC services, corporate action facility, etc. 

CDSL is the biggest beneficiary of the surge in the opening of new demat accounts. Two factors that has led to a surge in new demat accounts are (a) the boom in the IPO markets and (b) and increase in retail participation for direct investing in stocks in the secondary markets.

Ujjivan Small Finance Bank (SFB) Ltd.

Ujjivan SFB is one of the wealth destroyers. While the IPO got a very good response and the share price listed at a good premium, what followed was not good for shareholders. The company share price proved to be a big underperformer due to the following reasons:

• The lockdowns led to the closure of many businesses and job losses, which resulted in many people defaulting on their existing loans. 
• The lockdowns have affected the collection efficiency of loan EMIs.
• There is a threat of the third wave of COVID-19, due to which the current economic scenario is gloomy. This has made Ujjivan SFB and other lenders cautious in disbursing new loans.
• However, with the vaccination drive picking up, the business sentiment is expected to revive in the near future, and the job market is expected to bounce back. It will surely lead to better prospects for Ujjivan SFB and other lenders.

Related: IPOs that have disappointed investors in the last 10 years

Last words

Our analysis of the most oversubscribed IPOs reveals that while higher oversubscription may result in a good listing, it need not always lead to wealth creation over time. Post listing, the share price movement depends on the business environment and the company’s financial performance. If a company is able to capitalise on the business opportunity (for example, Happiest Minds and CDSL), it can create wealth for shareholders. 

Sometimes unexpected events like COVID-19 can spoil the business prospects of a company (such as Ujjivan SFB). This may lead to deterioration in the company’s financial performance and erode shareholder wealth. In such cases, the company has to take a cautious approach by waiting for the business environment to improve and then press the business accelerator pedal.