As in last few months lot of IPOs (Initial Public Offers) came in market most of people send the query asking what is an IPO, Is IPO always a better way to make profit, how to go about an IPO to select or reject. In this article we will try to recover some of these queries.
IPO is the way to generate capital/money from market for company’s growth and expansion and in return offering the stake in company. After IPO allotment subscriber receives share of the company and have right to earn the profit from company’s profit.
In the last 4 months almost 30 New companies launched their IPO and some of the companies make a lot of promotions and caught attention from all investors and general public, but this does not signifies IPOs are always good to subscribe or profit from them is assured. Out of last 30 IPOs 21 IPOs have fallen below their list prices and resulted in a loss, please check the table given below for that information:
Selection of IPO depends on variety of parameters some of them are:
- Industry and Business Scenario – The overall sector performance and outlook for an example if some company operating in Automobile sector launches IPO, first thing we should look for who all companies have similar operations and functions. What is the demand of automobile products in the market in India and abroad. How is company’s position with respect to its competitors.
- Company’s Performance – How are the operations of companies with respect to its competitors, what are the levels of profit, Cash flow, amount of Loan due, reach in market and companies reputation for its product and services.
- Stock Market condition – How is the stock market moving are people buying more and more share and putting in more money in the market or are they withdrawing from the market. The easiest approximate indicator of this can be movement of Sensex or NIFTY that if it is growing means money flowing in market else vise a versa.
If we will analyse the currently standing IPO of Punjab and Sindh Bank on these parameters, Firstly the banking sector overall has seen tremendous growth in last one year and market is still bullish about their performance due to strong performance of the major clients in MSME sector and high IIP. To check the company’s performance we can see
that the company’s performace is same as their peers and Valuation ratios P/E (Price per share/ Earnings per share) and P/BV (Price per share/Book value per share) indicates that company offers potential to give significant gains but closely analyzing its performance of Financial statement we realize the number of outstanding equity has reduced significantly in 2009 that’s why the valuation looks attractive. Because of less number of shares the Earnings and Book value per share in increased. If we try to take average of last three years we realize the valuation is almost as per its peers , therefore not very attractive to invest in.
lastly from market perspective, currently the market is very volatile it is seeing huge fall and ups in a day so money flow to market is limited people and corporates are not willing to put more money in market, therefore it is not advisable to buy Punjab and Sindh bank IPO. Its better to invest in other big companies which are available at cheap.