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PSU IPOs put up better show than private firms in bull, bear phases

By Anand RawaniOct 16 2008, New Delhi

This market turmoil has hammered almost every stock, but not all of them have bled equally. At least in
case of PSU IPOs, the market has been a bit merciful. According to a research report by SMC Global,
PSU IPOs that came between 2004 and 2008 have given a positive return of 63 per cent against 23 per
cent loss suffered by their private peers in the same period of time.

During 2004, six PSU IPOs hit the market, out of which five are still in profit and their overall return is as
high as 90 per cent. In the same period, 13 private companies floated IPOs and only seven of them are
now in profit with returns of about 23 per cent. The returns from the PSU and private sector IPOs of 2006
are 28 per cent and – 8 per cent, respectively.

Religare Securities president (equity) Amitabh Chakraborty says, "PSU IPOs came with very realistic
pricing. Moreover, many of the PSU companies hold monopoly conditions in their respective areas and,
hence, they attract very high valuations."

The SMC Global report pointed out that the trend probably can be attributed to the realistic pricing of
PSU IPOs and stable and consistent financials of PSU companies in compared with private sector firms.

Some of the best performing IPOs from the PSU category are PTC, Petronet LNG and National Thermal
Power Corporation. They have given returns of 210 per cent, 157 per cent and 153 per cent, respectively.
This year's Much-talked-about IPOs from the private
sector are among the major losers.

Reliance Power and Future Capital Holdings came early this year and attracted super subscriptions, but
both of them are now trading at a discount of 77 per cent and 62 per cent to their issue prices. Among
other major IPOs of last year, DLF is trading at a discount of more than 52 per cent to its issue price.

Dipen Shah, vice president (research) of Kotak Securities, says, "The main reason behind the
comparatively poor performance of the private sector IPOs is that several companies are in emerging
industries, which had caught the fancy of investors and the IPOs were launched when the markets were
at high valuations."

The overall return from the IPOs, which came between 2004 and 2008, is in the negative territory. They
have lost around 2 per cent. IPOs that came in the recent past have suffered more losses.

But long-term IPO investors are still in gain. IPOs that came in 2004 and 2005 are still giving positive
returns in spite of the substantial correction in the stock market. On absolute terms, IPOs of 2004 and
2005 are stillgiving returns of 67 per cent and 14 per cent, respectively.

In 2004 and 2005, the aggregate issue sizes were $6.20 billion and $2.26 billion and their current market
values stand at $10.37 billion and $2.57 billion, respectively. While in 2007 and 2008, the aggregate issue
sizes were $8.18 billion and $4.24 billion, their current market values stand at $4.95 billion and $1.72
billion, respectively.