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The big bang DLF IPO is here again. The price band is Rs. 500 – 550 per share and is offering 17.5 crore shares for subscription. At the upper end of the price band the issue hopes to garner Rs. 9625 crores!!!
And again my prediction is that it won’t be successful. I don’t believe in the real estate valuations and that I have stated many times earlier here. Today I will not talk about valuations. I believe, The size of the IPO is enough to kill itself.
Analysts are wrongly comparing DLF IPO to RPL IPO. They are trying to sell the point that if Indian market can absorb RPL IPO it can also absorb DLF IPO.
Let me argue to the contrary.
First – DLF is no Reliance
Reliance has a 30 year track record of rewarding its shareholders and Dhirubhai Ambani is known as father of equity cult in India. RPL’s parent company had a shareholder base of 35 lakh shareholders (It’s a record; every 4th investor in stock market is a shareholder of Reliance). RPL IPO saw a mad rush for opening D-Mat accounts among non investors. DLF can’t even hope for anything similar to that. DLF is not even TCS, ONGC or ICICI bank.
Second – It’s a Myth that Reliance Petroleum raised 8100 Crores from market through IPO
Fact: RPL has reserved 90 crores shares for RIL of the total 135 crore shares on offer. Which means the net size of the IPO was only 45 crore shares or Rs. 2700 crores.
Third – Not enough retail investors
I believe, everyone one will agree that if Retail part of the issue is not subscribed fully there is negligible chances of upside when the issue lists.
Now let’s do some number crunching.
DLF IPO size is Rs. 9625 crores at the upper end of the price band and is offering 17.5 crores shares for subscription. Around 30% of the issue would be reserved for retail investor. As per the SEBI guideline retail investor can invest maximum Rs. 1 Lac per IPO. Hence if all applicants apply for maximum permission number of shares it would require around 3 lakh applications. Generally less than 1/3 of the applicants apply for maximum permission number of shares. In case of RPL issue it was around 32%. Going by the weighted average method it would require at least 6 lakh retail applications to fully subscribe the retail part of the issue.
Yes, RPL IPO was oversubscribed by around 13.8 times. It meant that total money retail investors provided was Rs. 2980 cr. (16*13.8*45cr*30%). At 100% retail subscription, DLF is hoping to raise Rs. 2888 cr (9625*30%)!!!!
Fourth – Where is the upside?
Even if the IPO managed to escape through like the Cairn India IPO and manage to somehow show 100% subscription by retail investor’s what’s the point of investing? Retail investor would like to invest in an IPO only if he is hoping that the IPO would be oversubscribed many times over and hence would command premium in the secondary market on listing. As shown above it’s very difficult that the issue would be subscribed completely. Hence I don’t see any possible upside in the issue.
Fifth – bad marketing
The one year listing drama has done enough damage to the issue. It can’t command the same confidence it would have a year back. Secondly rumors like – Ambani brothers have joined hands to make sure that DLF IPO is not successful is doing no good for the IPO. I don’t buy the logic that Ambani brothers are interested in relative market cap of DLF with RIL market cap already 2.5 times and RelCom market Cap also more than that of proposed DLF market Capitalization. Such rumors can only harm the issue. Very few like to bet against the Ambani at least on the stock market. Again news of leading i-bank deserting the ship is not taken positively by the market.
Sixth (the most important) – Valuation
Boss, look at the top line and bottom line figures. Do you think public is idiot??
My recommendation to retail investors
Don’t even think of investing in this IPO. And those who are planning of investing in other companies in the secondary market in the next 10-15 days please hold on to your horses. Check out the fate of the DLF IPO & its impact and then enter the market.
And again my prediction is that it won’t be successful. I don’t believe in the real estate valuations and that I have stated many times earlier here. Today I will not talk about valuations. I believe, The size of the IPO is enough to kill itself.
Analysts are wrongly comparing DLF IPO to RPL IPO. They are trying to sell the point that if Indian market can absorb RPL IPO it can also absorb DLF IPO.
Let me argue to the contrary.
First – DLF is no Reliance
Reliance has a 30 year track record of rewarding its shareholders and Dhirubhai Ambani is known as father of equity cult in India. RPL’s parent company had a shareholder base of 35 lakh shareholders (It’s a record; every 4th investor in stock market is a shareholder of Reliance). RPL IPO saw a mad rush for opening D-Mat accounts among non investors. DLF can’t even hope for anything similar to that. DLF is not even TCS, ONGC or ICICI bank.
Second – It’s a Myth that Reliance Petroleum raised 8100 Crores from market through IPO
Fact: RPL has reserved 90 crores shares for RIL of the total 135 crore shares on offer. Which means the net size of the IPO was only 45 crore shares or Rs. 2700 crores.
Third – Not enough retail investors
I believe, everyone one will agree that if Retail part of the issue is not subscribed fully there is negligible chances of upside when the issue lists.
Now let’s do some number crunching.
DLF IPO size is Rs. 9625 crores at the upper end of the price band and is offering 17.5 crores shares for subscription. Around 30% of the issue would be reserved for retail investor. As per the SEBI guideline retail investor can invest maximum Rs. 1 Lac per IPO. Hence if all applicants apply for maximum permission number of shares it would require around 3 lakh applications. Generally less than 1/3 of the applicants apply for maximum permission number of shares. In case of RPL issue it was around 32%. Going by the weighted average method it would require at least 6 lakh retail applications to fully subscribe the retail part of the issue.
Yes, RPL IPO was oversubscribed by around 13.8 times. It meant that total money retail investors provided was Rs. 2980 cr. (16*13.8*45cr*30%). At 100% retail subscription, DLF is hoping to raise Rs. 2888 cr (9625*30%)!!!!
Fourth – Where is the upside?
Even if the IPO managed to escape through like the Cairn India IPO and manage to somehow show 100% subscription by retail investor’s what’s the point of investing? Retail investor would like to invest in an IPO only if he is hoping that the IPO would be oversubscribed many times over and hence would command premium in the secondary market on listing. As shown above it’s very difficult that the issue would be subscribed completely. Hence I don’t see any possible upside in the issue.
Fifth – bad marketing
The one year listing drama has done enough damage to the issue. It can’t command the same confidence it would have a year back. Secondly rumors like – Ambani brothers have joined hands to make sure that DLF IPO is not successful is doing no good for the IPO. I don’t buy the logic that Ambani brothers are interested in relative market cap of DLF with RIL market cap already 2.5 times and RelCom market Cap also more than that of proposed DLF market Capitalization. Such rumors can only harm the issue. Very few like to bet against the Ambani at least on the stock market. Again news of leading i-bank deserting the ship is not taken positively by the market.
Sixth (the most important) – Valuation
Boss, look at the top line and bottom line figures. Do you think public is idiot??
My recommendation to retail investors
Don’t even think of investing in this IPO. And those who are planning of investing in other companies in the secondary market in the next 10-15 days please hold on to your horses. Check out the fate of the DLF IPO & its impact and then enter the market.
