What is behind the stellar success of this IRCTC IPO?
Purchase what you know,” is a mantra Peter Lynch is well known for, even though the famous investor and mutual fund supervisor has explained that the aforementioned simplistic excerpt misrepresents his doctrine for stock-picking.
From the looks of it, the broad advice is held dearly by Indian investors. They turned up in droves to register to the first public offering (IPO) of Indian Railway Catering and Tourism Corp Ltd (IRCTC). The business effectively has a monopoly for a reservation platform for railroad tickets, which is a company that’s familiar to many Indians that invest in shares. “The high brand recall is a significant reason the IPO evinced such high interest,” states an expert on the principal markets.
Overall, the IPO was subscribed 112 times, so the firm got bids worth $72,200 crore, while it established to increase 645 crore.
Lynch’s main quibble with buying businesses that are recognizable is that ignores the significant role of basic research. Naturally, IPO investors are at any instance known for being just short-term investment horizon. However, in the event of the IRCTC IPO, it ends up that the issue was available at an extremely attractive valuation.
The issue has been priced in a price-earnings multiple of 18.78 times its FY19 earnings; however beginning this September that the firm has introduced a convenience fee, which can be anticipated to more than double its profits. As such, the issue was effectively priced at below 10 times earnings, which will be low for a monopoly business, say analysts.
“It’s uncommon for the employee part of the problem to be oversubscribed, especially in regards to issuances by government-owned businesses. Strong interest from insiders is almost always a positive sign,” says Nitin Rao, founder of alphaideas.in, an investment site.
“The prices quoted in the grey market suggest a leap of 55-60percent at the ITCTC stock on record,” he adds.
Naturally, the progress in investor sentiment after the corporate tax cuts helped.
But investors should be aware that the IRCTC IPO had some strong factors working in its own favor, such as the high manufacturer recall, advantages of being a monopoly and reduced valuations. The achievement of this IPO does not signify all issuances will succeed.