|
|
In the last two days, two companies - Wockhardt Hospitals and Emaar-MGF - have withdrawn their IPOs, while a couple of banks have cancelled their follow-on public offers.
Understandably, when the stock market is doing well, investors subscribe to anything; few questions are asked. But, when it falls, the reaction is of the other extreme - investors just don’t invest. Still, nobody likes to do the “due-diligence”.
So, what should an investor look at while deciding to invest in an IPO?
“Read the red herring prospectus that the company files with the regulator,” a skeptic might say. However, that really isn’t an option.
Emaar-MGF’s prospectus ran into a total of 780 pages, Wockhardt Hospital’s 358 pages and Reliance Power’s 312 pages - no way an investor can read all of this.
However, an investor can definitely look at a few things, for making an informed decision:
1) Valuations: The first thing to look at is how aggressive the IPO is priced at with respect to listed companies in its segment. Take Wockhardt Hospitals - its price-to-earnings (PE) ratio could have varied between 169 and 195 depending on the price it was subscribed at. In comparison, a major existing player like Apollo Hospitals is currently quoting at a PE of 29.8. PE ratio can be calculated by dividing the price of the stock with its earnings per share.
This basic comparison clearly tells us that Wockhardt Hospitals was very aggressively priced. That is why investors, who have suddenly smartened up, decided not to invest.
CAclubindia
