Overpriced share falls without significant deliveries – more pain to follow 

Den Networks Limited listed yesterday. It was the case of yet another IPO, yet another listing and yet another disaster. The IPO price band was Rs 195-205. The IPO was just about ‘managed’ and was subscribed. There was large scale withdrawals post the close of the issue and finally an IPO which was for 2 cr shares allotted 1,85,67,240 shares. It shows the quality of the issue and the fact that many people were probably coerced into applying who then simply pulled out by withdrawing their bids or their cheques not being honoured. For the sake of putting this on record this would amount to roughly 7.16% of the issue. As a result of this poor subscription to a highly priced issue, the company and merchant bankers had no choice but price the issue at the lower price band of Rs 195.

Come listing and the price within minutes tanked to below Rs 165, a loss of Rs 30 or roughly 15% to the issue price. In intraday trading the share went below the Rs 150 mark and some last half hour support from management circles coupled with some amount of short covering saw the stock recover and close above its average at Rs 163.10 on the BSE and RS 163.40 on the NSE respectively. 

Listing day is the beginning of the companies’ public life. The share’s performance on that day will always be remembered for eternity. In future as and when this company is referred to whether it is with respect to performance, returns to shareholder or any future offerings this day would be a benchmark. This is something which is known to all and yet for the sheer greed of promoters and merchant bankers, issue after issue is being over priced and then it befalls the same fate. Why kill the retail investor? He is the person or group, who supports the market place, generally does not sell in a loss, and supports the company in good and bad times. 

Coming back to Den Networks, the total traded volume was 1.80 cry shares which were marginally lower than the IPO size of about 1.85 cry shares. This volume was substantially lower than what we have seen in recent times. There is apparently no reason for the lower volume.  The total delivery was 14.2 lakh shares which is a mere 8.19% of the traded volume and 7.92% of the issued capital in the IPO. On both these ratios they are substantially lower than what has been seen in recent IPO’s, where the delivery percentage in terms of issued capital has ranged from 25% to 35% in most issues and as a percentage of issued shares has been even higher.

The coming days will tell how and why this happened. Next three days price and delivery will be important to gauge the performance of the company. One advice to investors at this price point is to avoid the issue. It is still expensive.