The way the cookie crumbles

Last month, we had seen how, in a booming IPO market there were still some underperformers, primarily on account of a poor business model which couldn’t sustain the listing price level of the stock .

Now, after the August shakeout, let us zero in on the high-profile IPO/FPO’s where our opinion that their pricing was aggressive stands vindicated. The two stocks we shall discuss this week are IVR Prime and ICICI Bank.

IVR Prime is a subsidiary of IVRCL Infrastructure which was a primary beneficiary of this IPO in terms of inflows from two of IVR Prime’s IPO objectives, namely, repayment of loans and payments for development rights.

IVR Prime’s land bank comprises 2,478 acres, of which only 14 per cent is owned by the company or its subsidiaries. Further, the company expects the projects to be completed only by 2012.

Its other negatives included potential conflict of interest, limited geographical coverage area (primarily Hyderabad and Chennai), and the fact that the lions share of the profits from the Noida project will be pouched by the parent company.

Almost ironically, IVR Prime’s only real positive besides being engaged in the booming realty segment is its parentage. At a historical P/E demand of 150 odd, chances always were, investors would rather back the parent company, which clearly is a significant beneficiary of this IPO.

Against an issue price of Rs 550, IVR Prime’s stock dipped to Rs 343 during August. So, should investors bite now ? Methinks not, especially given the bigger real estate plays on offer, at better valuations.

The price differential in case of ICICI Bank’s FPO (vis-à-vis, the listed price) was simply not substantial enough to excite. We had then opined that the old two-hat trick of part payment upfront coupled with a Rs 50 discount did not cut too much ice as a volatile Sensex stock can swing by that margin and more in just a couple of trading sessions.

The recent weeks offered ample evidence of this as the stock dipped to Rs 805 against its discounted retail FPO price of Rs 890.

The bank faces concerns like falling ROE (post the FPO), availability of operationally better listed peers , funding side pressures on account of higher interest rates, higher NPAs and a relatively high price-to-book ratio.

Hence, at least for now, I would think twice before biting into this banking stock.

In the week ahead, we shall continue this discussion and look at few more high-profile underperformers who made the transition from the primary to the secondary market in 2007.

(Ashok Kumar heads Lotus Knowlwealth and can be contacted at ceolotus@hotmail.com)