** http://akprabhakar.blogspot.com Indian companies plan to raise a further $15 billion* in addition to the $8 billion* they have already raised since the start of April as QIP.
*Any stock which comes with QIP sees a good Up-Move after which the stock becomes underperformer.* ** * http://www.thehindubusinessline.com/iw/2009/11/22/stories/2009112250430700.htm * ** *Euphoria is short-lived * ** ** ** *Qualified Institutional Placements. * ------------------------------ * Despite the initial run-up in stock prices, four out of ten QIP stocks failed to match market returns. Equity dilution, worries about fund end use and the not-so-strong fundamentals are all at fault. * ------------------------------ *M.V.S. Santosh Kumar * Qualified Institutional Placements (QIPs) have created a buzz in the stock market in recent months, with companies raising QIP funds seeing a surge in stock prices in the run-up to such offers, foreign institutional investors preferring to pour big money into them instead of the secondary market and investors heaving sighs of relief on a company successfully closing its QIP programme. A *Business Line* analysis of QIPs in 2009, however, reveals that roughly 46 per cent of the QIP stocks failed to match market returns for investors while 38 per cent of the issues underperformed the index *vis-À-vis* their issue price. This may be because of sizeable earnings dilution, concerns over the end-use of funds and, sometimes, not-so-strong fundamentals. An analysis of 43 companies that raised more than Rs 34,000 crore through QIPs throws light on which segment of institutional investors participated in these issues, how companies planned to use the proceeds, the sectors that raised the most funds and many other trends. A majority of companies raising QIPs saw their stock prices rise in the run-up to the offer, with 43 of them registering an average 7.2 per cent rise in the 15 days before the offer. Stock Performance However, the euphoria seemed to evaporate after the offer, with one of every two stocks under-performing the market (BSE-500) after the offer closed. For instance, Network 18 Media, Punj Lloyd, Indiabulls Financial Services and REI Agro lost more than 20 per cent from their issue price. The reasons for the decline are two-fold. One, the enthusiastic response to QIPs partly arises from investors hoping the QIP would be priced at a premium to the prevailing market prices. However, the prices of several QIP stocks ran far ahead of actual offer prices, by the time the allotment closed. For instance, Ackruti City and United Spirits were trading at Rs 567 a share and Rs 1,043 per share, respectively, on the date of allotment, against the issue price of Rs 501 per share and Rs 913 per share offered in the QIP. With issue prices at a discount, the correction in stock prices post-issue was that much steeper. In fact, only half the QIP stocks delivered better than market returns, even for the institutional investors. Though there was no real sector trend in the companies that outperformed the BSE-500, the majority belonged to the financial services space. Some of the realty and infrastructure companies also outperformed. Unitech (one of the two times it offered a QIP), Shree Renuka Sugars and Orbit Corporation are some examples of QIPs in which the stock has returned over 70 per cent to investors from the time of the issue. Around three in ten companies are trading below their QIP issue price. The initial crop of QIP offers actually delivered good short-term returns; but not the subsequent ones, as valuations too soared. The first three companies that completed their QIPs this year, in fact, delivered great returns, gaining by more than 20 per cent within a fortnight of the offer. Indiabulls Real Estate rose as much as 46 per cent in a fortnight. The performance of QIP stocks also hinged on the proposed end-use of funds raised. Twenty-five companies of the 35 non-financial companies raised QIP funds for part or full repayment of debt, rather than for deploying money in expansion programmes. However, the market has not necessarily beaten down the stocks which plan to use the proceeds to repay debt. In banks and NBFCs, stocks have performed well after QIPs, perhaps because attempts to enhance their capital base may lead to higher disbursements and, thus, profit growth. FIIs back with a bang With the re-rating of the broader stock market since March 2009, and the extremely tight liquidity conditions of last year easing up somewhat, Corporate India has been in a rush to raise capital. Among various fund-raising routes, the most preferred was the QIP option, with its lower cost in terms of under-writing and time. Over the first nine months of 2009, QIPs raised Rs 34,000 crore, compared to Rs 14,700 raised through the IPO market. The frenzy of fund-raising through QIPs was supported mainly by a renewed FII appetite for Indian stocks. A study of 33 companies that came up with QIPs until September 30, 2009, and for which shareholding patterns are available, show that it is the FIIs that chiefly raised their stakes in the companies through the QIP route. Domestic institutional investors such as mutual funds and insurance companies did not participate as actively in the QIPs. The cumulative shareholding of FIIs as a percentage of total shares in these companies increased from 16.7 per cent to 30 per cent between March and September 2009. How much has the FII stake changed? The post-issue share-holding pattern of FIIs in Unitech increased from 8.2 to 36.3 in six months. In Webel-SL Energy and Indiabulls Real Estate, FII stake went up from 7 per cent and 41 per cent to 31 per cent and 67 per cent respectively. Sectoral Trends After realty and infrastructure sectors mopped up the bulk of QIP funds in the initial months, a more diverse set of sectors tapped the market in recent times. Of the first 22 companies that came up with QIPs, 70 per cent of the offer value was cornered by realty and infrastructure companies. However, the second set of companies came from sectors as wide-ranging as alternative energy (Webel SL-Energy), packaged foods (REI Agro), electronics (Opto Circuits) and breweries (United Spirits). Overall, realty companies cornered 28 per cent of the issuance amount till date and banks and NBFCs 32 per cent of the total issuances respectively. Infrastructure and construction took up 10 per cent of overall issuances. Case-by-case The experience with QIPs till date suggests that investors cannot be uniformly bullish about such offers and need to take a case-by-case view, depending on fundamentals. Investors need to watch out for the following factors with respect to QIP issues: *Many QIPs *entail substantial earnings dilution for the issuer. While it is too early to evaluate if profits have indeed kept pace with the equity base, QIP issuers may have to deliver much higher profit growth than their peers to compensate for the higher equity base. For ten out of 29 companies, the equity base expanded more than 25 per cent post QIP. In Unitech, Indiabulls Real Estate and Orbit Corporation, the equity base increased by more than 40 per cent. *Interest costs *may need to be closely watched for companies which plan part-prepayment of expensive debt raised during the credit crunch. These companies may reap double benefits from lower debt on falling interest rates in the quarters ahead. *Companies that *opt for multiple QIPs (such as Unitech) have registered a sharp fall in promoter holdings, which may not exactly inspire confidence in investors. -- You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. To post to this group, send email to [email protected]. To unsubscribe from this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/globalspeculators?hl=.
