Q&A_ Why Bikaji foods IPO was a flop?
Namaste!
Bikaji Foods and Haldiram's control 50% of the organized namkeen market in India. The people, mostly retail would have thought this would be a blockbuster IPO considering whopping 80.63 times by QIBs (Qualified Institutional Buyers). Generally this kind of oversubscription leads to very good listing gains, but this time it didn't happened.
The reasons according to me are following:-
1. It doesn't have a value at this price: Sure, it is (along with Haldiram's) are market leaders in "organised" market, but what about unorganised market? These include the local samosewala, chai ki tapri, Gujrati and Rajasthani folks, etc selling namkeen and related products.
It's face value is Rs 1. It looks like they had split shares 1:10 before the IPO.
2. It's EPS has fallen aggressively due to split: It's EPS (Earning Per Share) is Rs 3.2. If you put this value to Sir Benjamin Graham's formulae, you would get IV (Intrinsic Value) as Rs 112 if YoY growth is expected as 20% and 10 year yields as 6.1%. The IPO price was Rs 300, I don't have to explain further.
*Fun-fact*: There are different methods to value a company, I prefer Sir Ben Graham's formulae because it seems very logical to me. Their method will not apply for loss making companies. Such companies have to be evaluated based on Comparative company analysis, Sales increase/growth analysis, discounted cash flow analysis, etc.
3. What should retail people do?
A: Gather knowledge. Learn to value a company or IPO. Give some time to understand it. The more you learn, the more you earn (ofourse sometimes by investing in IPOs :)
Disclaimer: The analysis I have shared is based on my understanding and experience in the markets. Please do your own analysis and/or consult your financial advisor before investing and/or trading.
Bikaji Foods and Haldiram's control 50% of the organized namkeen market in India. The people, mostly retail would have thought this would be a blockbuster IPO considering whopping 80.63 times by QIBs (Qualified Institutional Buyers). Generally this kind of oversubscription leads to very good listing gains, but this time it didn't happened.
The reasons according to me are following:-
1. It doesn't have a value at this price: Sure, it is (along with Haldiram's) are market leaders in "organised" market, but what about unorganised market? These include the local samosewala, chai ki tapri, Gujrati and Rajasthani folks, etc selling namkeen and related products.
It's face value is Rs 1. It looks like they had split shares 1:10 before the IPO.
2. It's EPS has fallen aggressively due to split: It's EPS (Earning Per Share) is Rs 3.2. If you put this value to Sir Benjamin Graham's formulae, you would get IV (Intrinsic Value) as Rs 112 if YoY growth is expected as 20% and 10 year yields as 6.1%. The IPO price was Rs 300, I don't have to explain further.
*Fun-fact*: There are different methods to value a company, I prefer Sir Ben Graham's formulae because it seems very logical to me. Their method will not apply for loss making companies. Such companies have to be evaluated based on Comparative company analysis, Sales increase/growth analysis, discounted cash flow analysis, etc.
3. What should retail people do?
A: Gather knowledge. Learn to value a company or IPO. Give some time to understand it. The more you learn, the more you earn (ofourse sometimes by investing in IPOs :)
Disclaimer: The analysis I have shared is based on my understanding and experience in the markets. Please do your own analysis and/or consult your financial advisor before investing and/or trading.
Comment:
Nykaa is another IPO company, they have Debt to equity of 0.67, PE 1133. Fundamentally, it is very weak. It was all hype created for existing investors' exit. Bonus issue was like a liquidity increase to give a wide door to exit existing investors in big quantities.
Comment:
Stock market is sometimes frustrating. The shares boom (Bikaji here) just after you sold. This kind of scenarios are very very common. But, the person who doesn't regret, will be successful in the long run. The emotional person who do regret, would "buy at this high price" due to FOMO (fear of missing out).
Warren Buffett (the greatest investor of all time) doesn't bought a single tech stock, whereas tech was the biggest wealth creator in the modern history. Do he regret his decision to not include tech in his portfolio? NO! He says "he doesn't qualify to make money in the business he doesn't understand".
Warren Buffett (the greatest investor of all time) doesn't bought a single tech stock, whereas tech was the biggest wealth creator in the modern history. Do he regret his decision to not include tech in his portfolio? NO! He says "he doesn't qualify to make money in the business he doesn't understand".
Comment:
Investors pay big premium to FMCG or Consumer businesses, that's what its P/E indicates. FMCG businesses have an average P/E of 40 (referred P&GHH, HINDUNILVR, NESTLEIND & DABUR). I would not be surprised if BIKAJI follows the same path in valuation.