Why did Adani Wilmar prosper in today’s corrected market yet Paytm failed terribly when the market was tremendously bullish?
Calendar 2022 is expected to be a record year for IPO investing in India, with a huge number of IPOs scheduled for the following months.
Before we get into the details, let’s go over some of the main factors that contribute to the IPO’s success.
- A sizable and expanding addressable market
- A distinct and distinct business model
- Margin expansion and cash flow creation
The case of Paytm:
- Considering the lack of a licence to enter the loan business — one of the most profitable verticals in the fintech space — institutional investors have expressed concern about the company’s growth potential.
- Paytm’s value is “expensive,” according to Macquarie Research, at 26 times its expected price-to-sales ratio for 2022-23, compared to the worldwide norm of 0.3-0.5 times the price-to-sales growth ratio for fintech firms.
- The issue was only 1.51 times fully subscribed on the last day, with the retail part being 1.62 times fully subscribed. A good IPO is typically oversubscribed by 10-20 times or more.
Case of Adani Wilmar:
- Fortune is one of ADL’s most popular brands, and it is one of India’s top five fastest-growing packaged food firms. The company operates 22 production facilities in India, including 10 crusher plants and 18 refineries spread across ten states.
- Adani Wilmar Ltd’s profit increased to 357 crores from 288.7 crores for the six months ending September in the previous year.
With 25% of India’s refining capacity and 2x the market share of the next rival, Adani Wilmar is the leading player in branded edible oil.
Subscribers responded positively to the IPO, which was oversubscribed 17 times.
Paytm’s market capitalization dropped by half after its IPO, compared to its issue price. Following the IPO, Adani Wilmar’s market capitalization increased by 60%.
However, pricing is the single most important aspect in determining the success of your IPO!
You certainly left some money on the table if your stock price concludes its first day of trading up 25-50 percent from its IPO price. If you try to extract too much value from the IPO’s price potential, you’ll end up with a shaky listing and a lot of negative press. Seek out serious, long-term investors who have done their study and are familiar with your industry.
While Adani Wilmar demonstrated its business acumen and profitability to attract long-term investors, Paytm bungled its IPO and promoted to retailers with an overvalued valuation while the company was not even profitable.