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What was one of the most awaited IPO turned into a nightmare for unlisted share investors. The NSDL IPO of Rs 4,011 crore is set to open on July 30, ranging between Rs 760-800. Despite the hype, 41 times oversubscription and positive fundamentals, the NSDL IPO left investors frustrated who invested in the depository before the IPO around Rs 1025.
Offer For Sales, Existing Shareholders Backing Out
This IPO didn't have a fresh issue, just an offer for sale (OFS) for the existing shareholders. Many investors face a notional loss of up to 40% as the share was at an all-time high of Rs 1205, but the IPO price was announced as range in the range of Rs 760-Rs 800. This is more than a 35 % decline in less than 2 months, leaving many unlisted investors angry over the volatile valuation of the unlisted shares.
This Is Not The First IPO Valuation Shock
The unlisted market is going through a stream of IPO valuation shockers, where the unlisted share is hyped up near the IPO, but the valuation falls flat after the company opens the IPO. Thus, leaving unlisted investors with no chance.
HDB Financial IPO has the same story
Just after a 30% jump in HDB Unlisted Share Price, the NBFC’s IPO has left 50,000 investors with a notional loss of up to 48% of their holdings. The unlisted share was trading around Rs 1200-1350 per share, came down to Rs 700-750 in the Red Herring Prospectus(RHP) on June 19.
HDB IPO opened at Rs 835, giving IPO investors a 13% gain but leaving the early unlisted investors at a loss of 40%. The HDB listed share also trades around Rs 747, way below the pre-IPO acquisition costs. “I never knew this was coming. I had purchased HDB around a year ago. I think I should avoid investing in unlisted stocks,” says Nagarajan, a fundamentally driven investor who now feels similarly cautious about NSDL. He’s still hopeful about NSE, where he holds shares he purchased a few months ago, but feels it would still be more than a year till the shares are listed. (Source from ET).
There Is A Common Pattern
In the majority of cases, the share hype before the IPO is driven more by listing expectations and scarcity premiums. But after these frequent cases, we realised that the IPO pricing is sharply below the market hype. The hype is not enough to carry the stock in the listed markets. What can we learn from this case? That Reputation ≠ Valuation.
Is Tata Capital IPO In For The Same Fate?
Backed by the trusted Tata Group and a strong investor base, Tata Capital's unlisted shares have consistently drawn interest from the market. However, with the recent IPO debacles, the unlisted share market has raised eyebrows regarding the Tata Capital Pre-IPO valuation. Tata issued rights issue at Rs 343 per share, which was one-third of the current unlisted share price of Rs 935.
As soon as the right share news was announced, the unlisted share price came to Rs 925 to Rs 785 in 2 weeks. Currently, the Tata Capital Unlisted Share price is trading at Rs 840 per share.
Choose Reality Over Hype
IPO pricing depends on many factors beyond the unlisted market, like market conditions, regulatory approvals, peer benchmarks, and issuer strategy. The price you pay for unlisted shares today has no relation to what the company will price at IPO.
In the unlisted market, overpaying for even the best companies can make you lose your investments. Investors must research, study the financials, business models and valuations before making a transaction in the unlisted space. Join Stockify’s investor community and never miss an unlisted share update.
