Infrastructure companies, which got listed between 2004 and 2011, have bruised their investors badly due to financial crisis, high interest rates and slowdown in domestic economy on one hand and asset-heavy business models of most companies on the other.
Of the 30 such listings between 2004-2011, only 10 are giving positive returns, including three government-owned companies (SJVN, BEML and NTPC). Of the rest 20, stock prices of companies such as IVRCL, Unity Infraprojects, Lanco Infratech, Consolidated Construction Consortium, Gammon Infrastructure Projects, KSK Energy Ventures, and Jaypee Infratech are quoting in single digits today while others have tumbled heavily.
Failure of Reliance Power IPO has been remembered for years now.
According to data provided by Capitaline for 52 infra companies (including some newly listed ones), sales and net profit of only six and 18 companies, respectively, have grown at a compounded annual growth rate of over 20 per cent during FY12-17. Further, six companies have negative networth and 15 companies have debt-to-equity ratio of over 2 times for the half-year ended September 30 (latest available balance sheet data). However, the performance of infrastructure companies, which got listed post 2012, have been better than those listed prior to 2012. Almost all have been successful or are giving positive returns.
Returns 12-348%
Stocks of companies such as NBCC (India), Power Grid Corporation of India, MEP Infrastructure Developers, PNC Infratech, Power Mech Projects, Sadbhav Infrastructure Project, Dilip Buildcon, Cochin Shipyard, Housing and Urban Development Corporation, PSP Projects and Capacit’e Infraproject are up in the range of 12-348 per cent compared to their issue prices. Only the stock of Bharat Road Network is down 12 per cent (market price as on Thursday).
“It also depends on which business cycle the IPOs came in. Past infra IPOs (2005-2010) came at the peak of the bull market, while IPOs post 2012 came in the bear market,” Harendra Kumar, Managing Director, Elara Securities, pointed out.
The question is: will the recently-listed IPOs turn dud after, say, five years? The answer is ‘no’. Experts do not see investors getting bruised in recently-listed IPOs as companies rightfully changed their business models in response to problems faced post-financial crisis and repaired their balance sheets.
Asset-heavy to asset-light
Ambareesh Baliga, an independent analyst added: “In past IPOs (2005-2008), companies were asset-heavy and there were balance sheet issues. Recently-listed players are mostly EPC companies. Companies which were asset-heavy are also trying to get asset-light,” he said.
As a result, financial performance of companies have improved. According to data provided by Capitaline for the 52 companies, while aggregate net sales grew 6.5 per cent year-on-year in the nine months ended December 31, adjusted net profit jumped 332 per cent.
Apart from micro parameters, macro parameters are also responsible for the success of recently-listed IPOs. The order book of companies are improving and the outlook of the sector is looking up sustainably for the long term, thanks to the government’s focus on infrastructure, said analysts.