TomorrowMakers

2020 was a good year for IPOs. Most IPO companies gave good returns, with Happiest Minds Technologies Limited multiplying shareholder wealth by more than seven times in one year.

2020 IPO performance Out of 16 companies, 11 have given more than 50% return till date

When a company offers its equity shares to the public for the first time, it is known as an Initial Public Offering (IPO). Before an IPO, the company would have very few shareholders. During the IPO process, the company’s shareholder base becomes large and diversified. The new shareholders become stakeholders in the company. They get an opportunity to participate in the growth of the company and benefit from it. Many companies came out with their IPO in the year 2020. In this article, we will explore the IPO returns in 2020.

Creating wealth for shareholders

Many companies have come out with their IPOs in the last few years and have created tremendous wealth for their shareholders. One such example is Avenue Supermarts Limited, which is the parent company of DMart. The company came out with an IPO in March 2017 with an issue price of Rs 295-299 per share.

The company got an overwhelming response from shareholders, with the overall share issue getting oversubscribed 104 times. Avenue Supermarts listed with a 100% premium on Day 1 on the NSE at Rs 600 against the IPO price of Rs 299. It closed the first day at Rs 641.

Since then, Avenue Supermarts has been doing well financially. The number of stores has increased, and sales and profits have been growing as well. As a result, the current share price is Rs 3589 as in August 2021. In just a little over four years, the company multiplied shareholder wealth by almost 12 times!

Share price performance of Avenue Supermarts Limited (DMart) since IPO

Share price performance of Avenue Supermarts Limited (DMart) since IPO

(Source: www.moneycontrol.com)

Note: The share price is as of 13 August 2021

There have been similar IPO success stories that have created a lot of wealth for their shareholders. In this article, we will focus on the performance of IPOs in 2020.

IPO performances in 2020

The year 2020 was a big roller-coaster ride for stock market investors. In Mar-Apr 2020, the stock markets saw a big crash – and then an even bigger recovery. During this very volatile year, 16 companies came out with their IPOs. Most of them did well and gave good returns to their shareholders. Let us look at the returns of these companies in detail.

IPO performances in 2020

Note: The current gain/loss is as of 12 August 2021

(Source: https://www.chittorgarh.com/ipo/ipo_perf_tracker.asp?year=2020)

As seen from the above table, 2020 was a good year for companies that went for IPOs. This good performance created wealth for the shareholders who managed to get IPO allotment of these companies.

The data in the above table can be divided into three categories:

  • Companies that listed at a good premium and then went on to create more wealth
  • Companies that listed at a discount or low premium and then went on to create wealth
  • Companies that listed at a good premium and then trended lower

Let us examine each of these.

a) Companies that listed at a good premium and then went on to create more wealth

The IPOs of three companies did very well in 2020 – Route Mobile, Happiest Minds Technologies Limited, and Rossari Biotech Limited. All three companies listed at a significant premium of more than 74%, but they did not stop there. They went on to create more wealth. 

Route Mobile got listed at a huge premium of 86% and continued its upward journey with overall gains of 468% as of August 2021. The company is into telecom solutions which boomed during the lockdowns.

Happiest Minds Technologies got listed with a huge premium of 123% and continued its upwards journey with overall gains of 736% as of August 2021. It is the best-performing company from among those who went for IPO in 2020. The company is an IT solutions provider, which continues to benefit from the Work From Home (WFH) theme.

IPO winners of 2020

IPO Winners

Note: The current gains are as of 12 August 2021

b) Companies that listed at a discount or low premium and then went on to create wealth
Some companies had a subdued listing with a low premium or a discount to the IPO price. But they picked up steam and went on to create wealth for their shareholders.

Companies that created wealth after listing

Companies that created wealth after listing

Note: The current gains are as of 12 August 2021

If you observe the table, out of 7 companies, 5 are into financial services. Four of them got listed at a discount to the IPO price. But shareholders who kept the faith in these companies were rewarded handsomely later. Angel Broking is the biggest winner in this category. Its shares got listed at a discount of 10%, but as of August 2021, shareholders are sitting on 305% gains. 

c) Companies that listed at a good premium and then trended lower
Some companies listed at a very good premium but could not sustain the momentum. In fact, some companies have given up some of the listing day premium. Currently, their shares are trading at a lower price as compared to the listing day closing price.

Companies trading below listing day gains

Companies trading below listing day gains

Note: The current gains are as of 12 August 2021

As seen from the above table, companies like Mrs Bectors Food Specialities Limited, Chemcon Speciality Chemicals Limited, and Mindspace Business Parks have given up around 40%-50% of their listing day gains. Yes Bank is the only company that has given up all its listing gains, resulting in a current loss to its shareholders. (In the case of Yes Bank, it was a Follow-on Public Offer (FPO) and not an IPO.)

The IPO market in 2021 is expected to be even better 

We saw the excellent performance of IPO companies in 2020. But 2021 is expected to be an even better year for IPO companies. Many companies have already come out with IPOs and have delivered good returns to shareholders. A lot more companies are in the pipeline and are expected to announce their IPOs soon. Investors will surely continue to reap the benefits of IPOs in 2021 and the years ahead.