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Is government over pricing PSU IPOs?

Created by : Jyoti Rath, Sr. Associate, Barclays  | 09 03 2009 07:02:49 +0000
Industry : Equity Research/AnalyticsFunctional Area : India(Markets)
Keywords : ipo indian government nse bse indian stock market dalal street psu nhpc listing divestment
Activity:  376 views;  last activity : 06 19 2011 18:17:04 +0000

The recent NHPC listing from the government generated a very low response. This came despite the buzz created around the issue which was in the true sense of the term a PSU divestment after a gap of over 18 months. Compared to its IPO price of Rs 36, the scrip was listed at Rs 39 on BSE and finally settled at Rs 36.70, a listing-day gain of just about 2%.


If we  go back for a while actually 2003 to be specific the Maruti divestment that happened, it is seen that NHPC shares were offered at a P/E of 38.3, the highest in the 24 divestments that has happened till, including follow-ons and bank IPOs, during the period under consideration.  Even the Oil India IPO, which opens probably next week in the Rs 950-1 ,050 price band, is at a P/E of a little over 10 at the higher end of the band.

What do you think guys is Government over pricing PSU IPO's?

  
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According to me yes, even though the NHPC  is a long-term bet, but due to the over pricing the people were not so enthusiastic in the listing of NHPC as many of them thought it was over priced. If one considers the most widely accepted valuation parameters which is the price to earnings (P/E) ratio then one can easily say yes the Government is over pricing the PSU  IPO's.
By Jyoti Rath, Sr. Associate, Barclays  09 03 2009 07:06:54 +0000
 
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PSU also want to run on the path of private companies. NHPC or any other PSU is long term bets. Because it is safe as till now the books are accurate in PSUs. whereas we wont invest our money in doubtful company. Many of them are just manipulating their A/cs.
By Vipin Bhasin, Private Equity/Hedge Fund/VC-Manager, Indian Investment Co.  | 06 19 2011 18:17:04 +0000
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Yes I agree to it that the government IPO's are being overpriced. As you can see that even NHPC issue too did'nt gave the return to the investors. In lieu of that there are many other power companies which are available at much lower P/E multiple.

Where as another govt IPO "Oil India" grey market premium is also much lower around 1800 for an application of 1 lakh rupees. this shows the lower confidence among the investors in the govt IPO's and its overpriced issue. As many other companies in the market are available much cheaper.
By Darshil , CEO/MD/Director, Darshil Cotton Company  | 09 04 2009 07:23:29 +0000
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I agree that the government is over pricing the IPO's. 

Because of the over pricing , the space for gains after listing are less and so the people are loosing the interest ..

I believe that the government is in actute need of funds and today the government is taking the advantage of good market conditions by pricing the IPO at a slightly high price to get more funds...
By Japan Shah, H.O.D, Oxford School of Management  | 09 04 2009 06:40:28 +0000
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Because the divestment came after a gap of time, investors latched up the offer.  Nobody bothered about the PE ratio.  On hindsight, one feels that we have to look at financial fundamentals. 
By Nagarajan Narayanan, Cost Accountant, Cost Accountant  | 09 04 2009 04:47:33 +0000
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The market gave a indifferent response to NHPC when its listed on Tuesday. Compared to its IPO price of Rs 36, the scrip was listed at Rs 39 on BSE and finally settled at Rs 36.70, a listing-day gain of just about 2%. Merchant bankers associated with the issue said it is a long-term bet, the not-so-enthusiastic listing of NHPC is also leading to doubts in some quarters if the issue was priced aggressively. From the past record, starting from Maruti disinvestment one sees that NHPC shares were offered at a P/E of 38.3, the highest in the 24 divestments, including follow-ons and bank IPOs, during the period under consideration.The Oil India IPO, which opens next week in the Rs 950-1,050 price band, is at a P/E of a little over 10 at the higher end of the band.
By Paresh Dhembare, Area Sales Manager, ICICI Bank Ltd  | 09 03 2009 17:00:51 +0000
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I also think so. Due to the over pricing the people less enthusiastic in the listing of NHPC and he who knows the valuation parameters which is the price to earnings (P/E) ratio, he can easily agree that the Government is over pricing the PSU
By Esha Johar, Risk Analyst, Irevna  | 09 03 2009 13:42:46 +0000
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Going by the history, the PSUs are not overpriced. Almost all the PSU shares are trading well above their issue price. And FIIs have made a huge killing of these PSU shares so far. We can apply for the IPOs and can either keep it for long term investment or sell it on listing for short term gains.
By Raju V P, Senior Manager, an International Bank  | 06 19 2011 17:34:24 +0000
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considering the financial fundamentals of the PSUs( comparatively less risky due to govt-tag) this kind of pricing is an appropriate balance of fair n attractive prices. though it focus on long term investors, due to these kind of pricing the short term gainers also get attracted and inthis way a good pool of investors is created. coming on to the sectoral growth, a lot of companies are jumping into power sector reflecting a huge scope for increasing shareholders value. 
By girish lalwani, MBA/PGDM student, ibmr-ibs  | 12 22 2009 07:01:41 +0000
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No I don't think that govt. IPO's are over priced. Yes in the recent years they have increased their prices. Power Grid, CMC & PTC all were priced in the range of 14 to 30 P/E mulitple.

In the past at the time of Matruti divestment & before that govt. were underpriced most of their IPO's  in the rage of 4 to 9% P/E multiple. Now they have realised this and pricing has been done accordingly.

Regarding bad response I don't know what happend with the issue, it might be govt. tag or just concluded Adani Power issue.

Adani Power is a new foray in the power industry. It doesn't have any history of Power business then also it was oversubscribed 20 times with 30+ P/E mulitple or more (project earning). How can we say that NHPC was overpriced? I think two back to back power issue has made lukewarm reponse.
By Deepak Agrawal, Consultant, Independent Consultant  | 09 03 2009 14:52:44 +0000
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