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Firstsource IPO Update

An update on the Firstsource IPO: Today’s Feb 2, the last date to apply for the IPO. What’s the situation?

From NSE’s Firstsource IPO page, it seems that the issue is already oversubscribed 6.7 times. Most of the subscription is by QIBs (Mutual funds, FIIs and the like) which have already asked for 10 times their quota. The retail individual buyer quota (Less than Rs. 100,000 invested) has been oversubscribed 1.1 times.

But the “non institutional investor” quota has not yet been oversubscribed. So if you have more than 100,000 to spare, you can apply in this quota.

If you are going to apply in the retail category, go ahead anyhow. It seems to me that you may only get about 1/3rd of your request, but there may be enough shares available after the shares are listed as well. I don’t expect a phenomenal listing gain on this, so invest only for the long term.

Update @ 1 PM: Issue is 16 times oversubscribed. Retail (looking at “cut off”) is oversubscribed 2 times. I think the way it is going, it will be oversubscribed at least four times by the end of the day. So applying for Rs. 40,000 you will get a max of shares worth Rs. 10,000. The remaining money comes back as a refund, after around 1 month or so. Even if listing is 40% higher, you will make only Rs. 4,000 – which is only 10% of your capital. Is it worth the effort? with a maximum gain of Rs. 10,000 (at the full application of Rs. 100,000) it’s probably not going to work out. (I personally am choosing to buy in the secondary market)

Update @ 2 PM: 19.5 times oversubscribed. Retail is nearly three times over.

Update @ 3 PM: 25.6 times oversubscribed, and retail 3.36 times. This is pretty much the exit point now – it looks like the retail portion will be oversubscribed 5 times or so.

Final Update: 50 times oversubscribed. The retail portion was oversubscribed 11.53 times, and the employee portion was also oversubscribed twice! The allotment will be on lottery – meaning lots will be picked to allot a certain number of shares – which will also be less than 1/5th of the shares bid for. This is not good for those who don’t get allotment – their money is gone for around 15 days at least. But even those that do get allotment will get a piddly number of shares. For subscription of 1 lakh, you would possibly get alloted only Rs. 20,000 worth of shares (or less) and gains of 40% on that will be Rs. 8,000. Good money, but not enough really – you could have got that perhaps if you invested in the shares directly.

I’m choosing to buy on listing – let’s see what it gets priced at. Anything under Rs. 75 is reasonable.

  • Anonymous says:

    >hi deepak,
    u r doing a great job here, i dont have ne words for the work u have done here. for a newbie like me, ur blod is just like a treasure. i could learn lots of basic.
    on reading some of ur articles and the linked websites, i found that the MF equity in technology sector, yielding well. can u please advice me whether can i buy any MF in these sectors now. if yes what would be the best MF available at present.

    awaiting ur response
    thanks in advance

  • Anonymous says:

    >Deepak
    At an annualised EPS of 2.33 for the current fiscal FirstSource valuation is 27.4 at cap price. Its PEG is also around 0.5 (100% EPS growth from last fiscal).
    This is reasonable considering its peers, Infosys,Wipro and HCL are at 35+.
    After listing, to attain 35 trailing PE its price should go upto 81 atleast.
    I’m expecting atleast 40% listing gains.I plan to retrieve my capital and leave the gains in the market. Do you think its feasible?
    Vikram

  • Deepak Shenoy says:

    >anonymous: Tech MFs are a reasonable buy now but you have to be careful about some factors:
    1) Moodys has upgraded India, so dollar flows into India may significantly increase. That means dollar will go down in the long term. That affects long term profit yield by reducing income in the rupee form.
    2) Salaries and attrition in the tech sector are at big highs. REmember that the fall of 2000 came at a very similar time (in the US).

    In the near term, though, tech companies may perform well. I don’t have a good view on the sector as a whole – only on individual stocks – so buying a tech MF may not yield great returns. I’ve personally exited my tech mutual funds in December.

  • Deepak Shenoy says:

    >Vikram: Past PEG is perhaps not as relevant – figures can be “dressed up” for IPOs. Plus growth will change considerably once they have this extra money. (In fact they should grow faster)

    The P/E is also not comparable to Wipro and Infy because those are software development companies where margins are different. You should compare it to ITES companies – like WNS – though there also PE is quite high.

    The reason I don’t say listing gains are high is for the capital you employ – looking at the BSE/NSE graphs right now, it looks like retail is oversubscribed two times already! (1 PM) so chances are that it will be three or four times by the end of today. Meaning you will get 1/4th the shares you bid for , so even if the listing price is 81, a 40% gain on amount invested is only a 10% real yield.

    Right now the issue is 16 times oversubscribed (in total). I suggest caution – I will personally skip the issue now, and buy from th secondary market.

  • Anonymous says:

    >Thanks for the inputs Deepak.
    Looks like I may have to rethink my strategy if the issue is oversubscribed more than 3 times.
    Can you post a similar IPO analysis for the upcoming MindTree and Idea Cellular IPO’s?Idea in particular is a tough nut to crack.
    Thanks again
    Vikram

  • Deepak Shenoy says:

    >Vikram: cheers mate. More danger lurks. At the 2 PM update, you will see why.

    I’m going to do an analysis on the Mindtree and Idea IPOs – gimme this weekend 🙂

  • Anonymous says:

    >Hi Deepak,
    I’m a regular viewer of your blog. Thanks a lot for the wonderful service rendered by you in the field of Investment, especially for the Micro Level Investors like me. Please make your suggestion for Power Finance & Indian Bank IPOs.

    Thanks & Regards
    Giri

  • DEEPANJAN says:

    >Hi Deepak,

    Congrats on the effort being put in, considering you yourself are a smart investor I am sure you have calculated the payoffs on your time spent here 🙂

    I invested in the IPO of First Source myself, a small amout that was lying idle. On your analysis of cost of capital considering I get only a fraction of it to yield money.. even then a 40% gain on 25% capital is same as a 10% gain on 100% capital in one month, when you annualize it, the returns are fairly significant.

    Of course you could argue on alternative opportunities, but they need to be of same risk profile and considering the stress in the market, secondary investing may not yield high returns in the short term.

    What do you say?

    By the way this is my first visit to your blog site, keep it up and running n free if you can 🙂

  • Deepak Shenoy says:

    >Deepanjan: Good point there. It makes a ton of sense to invest in an IPO when you have idle funds, especially if the payoff is like 10% in a month.

    But there are some other factors:
    1) No allocation. This has happened to me in the PTC IPO a few years back and that simply means money not available for a month, nothing else. The GBN IPO had allocated only to 37 out of every 102investors.
    2) Under allocation: Less shares than you allocated, the rest of your capital is refunded. Again the problem is of money being blocked only, and net return coming down.
    3) Low quantum: People who invest in the retail quota (whihc is hte least amount of oversubscription) get a very low absolute return because of the 100,000 upper cap on investment.
    4) Premium listing: The cairn issue listed at lower than the IPO rate. The risk of that is high with so many “listing gains” investors!

    Of course you could say that any money is good money so why leave it on the table – but I honestly don’t have a 100,000 lying around. Would rather invest it in the market – where some stocks have given over 20% in a month. And not penny stocks – BHEL has moved from 2100 to 2500 in about 20 days.

    Is secondary investing more stressful? Compared to the IPO strategy of a) not knowing how many shares you will get and b) wondering if the listing will be higher, secondary market is more transparent, more liquid and provides a lot more opportunities.

    Still, IPOs can be good investments. IPCL, ONGC, GAIL and recently the Opto Circuits FPO have been very kind to me. But the risk tradeoff must be known – at over 4 times oversubscribed (retail), it just does not make sense to me.

    Thanks for the comments on this blog: My payoff is the satisfaction I get from writing! and if I can keep this free forever, I will.

  • Anonymous says:

    >Deepak,

    Can you express your views about the current Power Finance Corporation IPO? is it advisable to invest in this issue?

    thanks in advance
    rahul

  • Prabhu says:

    >Deepak, thanks for the blog. Will you be able to tell me when will the shares be listed in the market and when will we get the results of the IPO – whether the application was accepted, rejected?

  • Anonymous says:

    >Hi Deepak,

    Waiting for your words on MindTree IPO. Please let us know the retail and employee subscription.

    Thanks for your blog.
    Cheers