Mail Today_30 March, 2009_IPOs fail to bring cheer to investors

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1 Aban Offshore 15.05 421.15

2 JSW Steel 13.77 230.90

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6 Federal Bank 9.34 146.85

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9 Rel Com 8.95 183.85

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Costa Coffeerolls out bigplans for India

INDIA is big on Costa Coffee’sexpansion plans — ten per centof the UK-based coffee chain’snew outlets planned for 2009are set to be opened in India.

“In 2009, the company plans toopen 250 stores. By end-2009, weplan to open 25 new outlets incities such as Bangalore, Hyder-abad, Jaipur, Ludhiana, Lucknow,Delhi, Mumbai and Chandigarh,”said Andy Marshall, chief operatingofficer-international, Costa Coffee.

Costa Coffee currently has 1,300outlets in 25 countries. It plans toexpand this network by openingnew stores in IT parks, airportsand office complexes. Marshallsaid the company has continuedto grow despite the slowdown.

Currently, Costa Coffee has 50stores in India through master fran-chisee Devyani International Ltd.“For the Indian market, our masterfranchisee Devyani Internationalwill invest the money. For otherinternational markets, it is open toany kind of economic model suchas joint ventures, franchise-basedmarketing or direct funding.”

Virag Joshi, president and chiefexecutive officer, Devyani Interna-tional said, “One outlet costsaround Rs 50 lakh. But it largelydepends on the location of theoutlet.” Added Marshall, “With realestate costs heading south it wouldbe easier to open more stores.”

Under its new marketing strat-egy, local taste and flavours arebeing incorporated into itsmenu. It recently insured thetongue of its chief taster GennaroPelliccia for $13.95 million withthe insurance giant Lloyd’s.

350New jobs at Google Incglobally in advertisingsales, enterprise, finance,HR and software

CONSUMER COURTThe Supreme Court is slated tomake a ruling on the maximuminterest rate that can be leviedon credit card dues Pg 32

mybiz

There is a possibilityof a cut in lending &deposit rates. But the(extent) and time have to bedecided

‘— O.P. BHATT

Chairman, SBI

‘

Mail Today, Monday, March 30, 2009

By Devesh ChandraSrivastava in New Delhi

NOSEDIVINGshare prices haveburnt investors ininitial publicofferings (IPOs)badly, with 87 per

cent trading at a loss.For the IPO market as a whole,

the numbers look even worse.All IPOs that have hit the mar-ket between January 1, 2005 andthe latest IPO of Edserv Soft-systems in February 2009, havetogether given a negative return(loss) of over 28 per cent. How-ever, when IPOs of 2004 areadded to this universe, the totalloss falls to 12.78 per cent.

IPOs are popular with retailinvestors, who perceive them asa relatively cheaper mode ofentry into the stock, or as ameans of making quick returnson listing, when the new sharebecomes available for trading.

However, a new study exposesthe fallacy of such beliefs in abear market.

Of the 278 IPOs throughwhich Rs 1,08,932 crore wasraised during this period, only35 or 13 per cent are in thegreen, while the remaining 243are in the red, a study by SMC

Capitals highlighted. The IPOscenario in 2009, with barelyone issue in the first quarter,reflects the economic slowdownthat has set in about fourmonths back.

Long-term investors wouldhave benefited from theirinvestments only in IPOs thathit the market in 2004, whichgave returns of about 60 percent in the last five years toMarch 17, 2009 (marked-to-market), said JagannadhamThunuguntla, equity head,SMC Capitals, who headed thestudy team. Investments inIPOs during the ensuing fouryears resulted in losses in therange of 19 per cent (IPOs foreach year clubbed together) to56.27 per cent.

During the period underreview, the benchmark BSESensex gained 2,991 points or51 per cent from 5,872.48 at Jan-uary 1, 2004, to 8,863.82 onMarch 17, 2009.

The number of IPOs that con-tinue to give positive returnshave fallen gradually - from nine

in 2004 to three in 2008. In 2009,only one issue entered the mar-ket — Chennai-based EdservSoftsystems, a web-learning, ITconsulting and resource deploy-ment company. Priced at Rs 60,Edserv listed on the bourses onMarch 2 and rose to Rs 147.90on the following day. However,since then it has continued toslide. It closed at Rs 34.20 onMarch 17.

THE highest number ofIPOs was seen in 2007at 103, followed by 2006with 79 companies rais-

ing funds from the primary mar-ket. Of these, only six and eightstocks, respectively, are in thepositive now. “But IPOs of 2008and 2007 are trading at thehighest discount to their issueprices — 56.27 per cent and44.39 per cent, respectively, ason March 17. IPOs of 2006 aretrading at a loss of 19.03 percent, while that of 2005 are trad-ing at 25.19 per cent loss,” saidThunuguntla.

Sectorwise analysis of IPOsthat hit the market in 2008shows that none have given

positive returns to investors(marked-to-market as onMarch 17). However, pharmaand healthcare sectors showedsome kind of resilience whencompared to the Sensex.

IPOs from pharma andhealthcare players that hit themarket during 2008 fell 8.33 percent and 32.16 per cent, respec-tively. However, compared tothe 52.45 per cent fall in theSensex during 2008, thesestocks performed better.

During 2008, however,investors in banking IPOs suf-fered a huge loss of 89.96 percent, followed by those in retail,manufacturing and textiles sec-tors, all of which recordedlosses of over 80 per cent.

None of the major sectors thatraised funds in 2007 gave posi-tive returns at the currentprices. But infrastructure com-panies that raised funds in 2006are in the positive pale, giving areturn of over 35 per cent evenat current prices.

Analysis of the performance ofIPOs that hit the market in2006, 2007 and 2008 shows thatthe pricing of IPOs was morereasonable in 2006 than in thelater two years.

By B.S. Srinivasalu Reddy in Mumbai

IPOs fail to bringcheer to investors

NO RIDING THE BULL

Of 278 IPOs in 2005-09, 87 pc are trading in the redYear Issue size Number IPOs Returns to date*

(Rs crore) of IPOs In profit In loss (Per cent)

2004 28,113.02 19 9 10 60.32

2005 9,977.97 39 9 30 -25.19

2006 20,040.97 79 8 71 -19.03

2007 33,781.68 103 6 97 -44.39

2008 16,994.93 37 3 34 -56.27

2009 23.84 1 0 1 -43.00Data for 2009 is for the first quarter of the year *Marked to stock prices as on March 17, 2009 Source: SMC Capitals