IPO updates: June 16, 2021

There are 4 IPOs hitting the markets this week. Our views are as below:

Both Shyam Metalics and Krishna Institute of Medical Sciences (KIMS) have a good estimated grey market as of June 15, 2021 and we are subscribing to both in anticipation of listing gains.

We are avoiding the other two IPOs as estimated grey market premiums are lower. Our views below are targeted at making listing gains and are not long-term views on the companies:

Name  IPO opens IPO closes Issue price Current Grey market premium
Current GMP
(% upside)
Our View
Shyam Metalics Ltd14th June 202116th June 2021Rs. 303 – 306Rs 146 – 14848.4%Subscribe
Krishna Institute of Medical Sciences (KIMS)16th June 202118th June 2021Rs 815 – 825Rs 225 – 25030.3%Subscribe
Dodla Dairy Ltd16th June 202118th June 2021Rs 421 – 428Rs 75-8018.7%
Sona BLW Precision Forgings Ltd14th June 202116th June 2021Rs. 285 – 291Rs. 15 – 206.9%

Note: This update is part of our blog post on how to enhance your returns on idle funds from 7% to 10% with limited short term equity risk. If you need a quick refresher on that, click here.

Update on Power Grid InvIT IPO

Power grid InvIT has several pluses like strong sponsor, demand for power transmission assets expected to remain very strong etc.

But it should be noted that IRR over the life of the existing contracts is approximately 8.5% pre-tax. (Yield of 11-12 % which is being marketed by some distributors is only for first 3 years)

Leverage is low. Hence there is scope of adding new projects. This can take overall IRR to say 10% with addition of new projects

Conclusion: Given lack of fixed income and related opportunities this IPO could be considered as part of an overall portfolio of fixed income. It should be borne in mind that the best way to evaluate InvITs is IRR over life (like we do for bonds) and not yield in initial years

IPO Updates 17th March, 2021

Photo by Hans Eiskonen on Unsplash 

We had shared our positive view on MTAR IPO about 10 days ago. It listed at around 90% premium to issue price. However, allotment success rate was low due to high oversubscription.

We have a slew of IPOs in next 7 days.  Below are details:

Both Nazara Technologies and Laxmi Organics have a good estimated grey market and we are subscribing to both in anticipation of listing gains. Both are expected to be heavily oversubscribed and it’s better if application can be done for larger amounts.

The bottom 3 in above table have low grey market premium and we are not subscribing.

Update on MTAR Technologies IPO

Current Grey Market premium is estimated at 80%.

Retail category has been subscribed 15.05 times and HNI/Non-Institutional category has been subscribed 6.86 times as on end of today i.e. 4th March, 2021 (second day of IPO). Subscription is expected to increase further.

We are applying through our savings (ASBA ) accounts purely for listing gains.

Update on Brookfield REIT IPO

The next upcoming IPO is Brookfield REIT (Feb 3 to Feb 5). We have a positive view on this IPO. 

First a quick primer on what REITS are

What are REITs : In simple words, REITs or Real Estate Investment Trust units are fractional or part ownership of real estate assets which are leased out. This allows a retail investor to have part ownership in a range of properties that otherwise not be possible for the retail investor. Globally as well as in India most REITs are traded on major stock exchanges. The rents collected from the underlying properties are distributed in the form of returns to REIT unit holders

These returns on REITs (based on the rent collected from underlying properties) are of 2 types – 

  1. Dividend – not taxable under section 115BAA
  2. Interest – fully taxable

Thus, while the amount of returns matters, the break-up between dividend and interest is also important to determine post tax returns.

Movements in prices: REIT units are traded on stock exchanges where the price fluctuates with the perceived appreciation or reduction in the underlying property price and other factors such as interest rates

Taxability of realised gains i.e. gains made on sale of REIT units are taxed as capital gains (short term gains at 15% and long term gains at 10%).

What is yield: Yield is

 [Expected returns i.e (dividend + interest) / Purchase price of the REIT unit]

We have a positive view on Brookfield REIT IPO and feel it will open at premium.

If you would like to understand a technical rationale for understanding the reasons behind this positive view, pls do read further but remember we warned you that this gets a little technical 🙂

Comparison of Brookfield REIT with other 2 listed REITs in Indian market

*after adjusting for zero coupon bonds only Embassy has. 

Remember, higher % of distribution as dividend means more tax free income.

While Brookfield has lower proportion of its distribution in the form of tax-free dividend, its overall yield at 7.75% to 8.00% is much higher. Market price post listing is heavily determined by foreign investors who are less sensitive to breakdown of distribution in form of dividend and interest as for them interest is taxed at only 5%. Given strong demand from yield hungry investors and a high yield of 7.75% – 8%, we feel that Brookfield should trade at premium to IPO issue price. 

Applying to Brookfield REIT IPO and selling on listing may (click on link to see our earlier blog on this subject) enhance returns on your liquid funds with limited short-term equity risk.

Staying invested for longer periods is subject to equity and property market risks and returns.

Our view is positive on Brookfield REIT IPO in expectation of a listing gain

So how did first IPOs of 2021 fare?

Photo by MayoFi on Unsplash

The past few days have had a few IPO listings – IRFC, Indigo Paints and Home First Finance. Let’s have a look at how these IPO’s fared:

As you can see, due to high oversubscription gain as % of amount bid was much lower than listing gain %

We have considered listing price only and not beyond as our blogs on this topic focus on IPO opportunity and not market risk and return post listing. If you haven’t read that, have a look here. Home First price fell post listing (but remained above IPO price) and Indigo Paints price rose yet further post listing.

In our previous blog, we had maintained a positive view on (click on link to see blog) Home First Finance and Indigo Paints

How actual numbers would have fared on the above IPOs. We have assumed some IPO bid amounts for easy illustration.

Home First Finance:

Assumed bid amount (A)5,65,000
Number of shares allotted (B)28
Gain per share (C)101
Overall Gain (D) = B * C2,828
Gain as a percentage of amount bid (E) = D / A 0.5%

Indigo Paints:

Assumed bid amount (A)40,00,000
Number of shares allotted (B)10
Gain per share (C)1,117
Overall Gain (D) = B * C11,170
Gain as a percentage of amount bid (E) = D / A0.29%

The absolute amounts of gains look small but as said in our earlier blog, these come with limited short-term equity risk. When done systematically they add to the return on your savings bank a/c with some measured short-term equity risk for those comfortable with measured short-term equity risk.

A common problem : I applied but I did not get allotment 😦

This happens because of oversubscription. Applications upto a certain threshold amount then have to face a lottery system so that minimum lot size of allotment (generally around Rs. 15,000) for each allotment is maintained.

For applications under lottery system, some would get no allocation (no return) and some higher allocation (higher return) greater than the gains % shown above. We don’t know how you fared in the lottery but over time it evens out. We will cover IPO allotment process in a future blog. But remember even if you did not get any allotment but have applied through ASBA a/c your cost of application is nil !

Update on Indigo Paints IPO

Current Grey Market premium is estimated at 60%

HNI / Non institutional category is already oversubscribed 117 times as on 13:30 hours of Jan 22 (last date of IPO) and will increase further. Therefore, amount allotted as a percentage of amount bid for will be less than 1%

We are applying with some balance in our savings (ASBA ) accounts. Expecting low allotment but whatever is allotted should give a listing gain.

We are keeping balance available for Home First Finance IPO closing Jan 25. Lower Grey market premium but also may just see lower oversubscription thus increasing chances of allotment.