Share trades at a discount of almost 4%, closes below Rs 50

Shares of L&T Finance Holdings Limited listed on Friday the 12th of August amidst a lot of fanfare at the NSE. This was an issue from the L&T group after 61 years and the loyal investor base built up by the company reposed its faith in the group. The issue was subscribed an overall 5.34 times led by huge support from retail which saw their category being subscribed 9.61 times.

Coming to the listing itself the share listed at Rs 51 on the BSE and Rs 53.85 on the NSE. The high was Rs 52.50 on the BSE and the open of Rs 53.85 on the NSE. The high was made on the BSE at around 10 am in the morning and the low of the day was made around 3.15 pm all almost at the end of the day’s trade, signifying the continued selling pressure on the stock as it traded. This does not augur well for the stock in the coming days and indicates that there could be further pressure as the days pass.

Looking at the table above one finds that the total traded volume 1425.35 lakh shares against the IPO size of 2339.56 lakh shares which means 61% of the IPO was traded on day one. The total delivery volume was 377.94 lakh shares or 26,52% of the total traded volume and 16.15% of the IPO size. The weighted average volume of the shares traded was Rs 50.90 on the BSE and Rs 50.91 on the NSE respectively. This weighted average is almost one rupee higher than the weighted close of the day. This is yet another issue which has excellent fundamentals, was highly priced as the price band of Rs 51-59 indicated. The management of the company should be appreciated that they were responsive to the needs of the time and chose to price the issue at Rs 52 even after the issue had a benchmark price of Rs 55 as a pre-IPO price. There was a further validation of the price when the anchor investors came in at Rs 56. The retail book was oversubscribed 9.61 times which means that almost 62% of the total book was subscribed by retail investors.

I believe having realised the strength of this loyal base that the company had, it chose to effectively give a discount and price the issue at Rs 52 and ensure that retail investors did not suffer. This category is the backbone of support for any company.

Looking at the price chart one can see that the share after opening at a discount to the issue price of Rs 52 and trading at Rs 51, rose to touch the day’s high of Rs 52.50 and had done this in the first hour of trade itself. The next three hours of trade saw the share under pressure and drift downwards to almost the Rs 50 level all over again. The share made an effort to rally thereafter but every rise saw an equally strong fall and this trend continued with the share giving up in the last half hour. The low of the day of Rs 49.50 on the BSE and Rs 49.30 on the NSE was made in the last half of trade. The share closed trading at Rs 49.95 on the BSE and Rs 50.05 on the NSE.

There are some lessons one needs to learn from the IPO of L&T Finance Holdings Limited. Withdrawal of forms after application is something which the system allows and it is a perfectly legitimate exercise. Even in this case, the HNI category which was initially subscribed 6.18 times reduced to 5.94 times post rejections and became less than half at 2.95 times when post allotment happened. This kind of withdrawal happens when investors believe that there would be no rewards for the investors and therefore withdraw their valid bids. It becomes imperative to price issues at prices which offer not only appreciation in the short to medium term but also ensure investors do not lose money. L&T Finance Holdings Limited was able to cash the goodwill of 61 years when it had priced its issue at a substantial premium to its listed peers. The response to the issue by retail investors and shareholders is testament to its goodwill and the poor response by QIB’s and final numbers by HNI’s indicate the over valuation or over pricing of the issue by the company. I believe this fine difference between the QIB’s and HNI’s who look at the quick return and the retail who looks at the long term track record and rewards loyalty should be looked into by more promoters looking to tap the capital markets in the near future.

The final word says that the issue has had a poor listing and there could be more pain going forward.