JainMatrix Investments – IPO Reports deliver 60.5% returns

Date: 12th July 2014

During the past year, JainMatrix Investments has published eight IPO analysis reports.

Analysis of an IPO is unusually challenging. The companies do not have a long operating history, and the detailed data about them is not available. Many of these firms may be from new or emerging industries and with unusual business models, rather than established sectors. But there can be good rewards from IPOs, as from this uncertainty there can emerge a few very valuable new companies.

JainMatrix Investments captures its record of recent IPO recommendations. Here we are are trying to pass judgement on our own reports and analyses in the Result Today column:

Chart

* – we have taken VRL, Inox and Adlabs  at absolute value as its been a short time since listing. The data in Table above is as of 12th July 2015. All reports from table above can be accessed through links below.

  1. Our call on the Manpasand Beverages IPO was an Avoid. The offering closed with a weak subscription of 1.4 times the offered shares. It is still 2 days since listing, and there has been no sharp movement of share price either way, so we will wait for some direction.
  2. Of these 8, it can be seen that 5 of our 7 calls were Right with VRL Logistics, Wonderla Holidays, Snowman Logistics and Inox Winds performing very well.
  3. Even with Monte Carlo, we had an overall negative opinion of the firm, but expected a pop on listing. However this never came through. So our judgement is that the Result Today is Wrong.
  4. Adlabs Entertainment did not get enough subscription, it had to extend the IPO and lower the price, and is yet to pick up. Hence our call to Avoid was a Right call.
  5. We had an Avoid call on Shemaroo Entertainment essentially because of inadequate information available about business prospects and segments of the company. It has appreciated well since listing. But we stand by this IPO judgement made at that time – it is better to avoid firms you do not know enough about, than take such a chance.
  6. Looking at the performance of the 5 BUY calls made by us, we can see that investors who went along with our recommendations would have gained an absolute 60.5%.

Our lessons from the IPO analysis:

  1. IPOs that do not meet our criteria including financial, valuation, management quality, business outlook and disclosure, will get an Avoid rating.
  2. The IPOs of firms with innovative business models or in new and high potential industries get valued at a premium by the market, if the other criteria above are met.
  3. IPOs can generate high returns only if promoters of even good companies, leave enough on the table for investors in terms of the pricing.

Note that Share Prices of stocks can change from day to day. However judgments of performance in Long Term investing must be done only periodically, say in 6 or 12 months to allow the analysis calls to pan out over time.

As we get into a season of possibly a lot of IPOs, I sure hope the promoters from these firms are generous and make their offers at reasonable valuations.

JainMatrix Investments will keep you posted on the upcoming IPO’s. We hope that our calls helped you invest better, and look forward to your support and feedback.

DISCLAIMER

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from a financial planner /advisor. JM has been publishing equity research reports since Nov 2012. JM has applied for certification under SEBI (Research Analysts) Regulations, 2014. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

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