Public issues with a smaller issue size performed better than IPOs with a bigger issue size during the first five months of 2011. An FE study reveals that about three-fourths of the successful IPOs in 2011 so far had an issue size of less than R200 crore.
Six out of the eight public issues that have outdone the broader market in terms of returns in the first five months of 2011, had an average issue size of R91 crores. Even in terms of the listing day gains, as many as eight (or 90%) out of the nine issues which posted a positive first-day gains were less that R200 crores in size.
The relatively better show of smaller issues in 2011 is in line with the trends witnessed during the IPO boom of 2006-2008. During those three years, on an average, 68% of the public issues that delivered outstanding first-day returns were of smaller size of less than R200 crore.
This finding may come as a surprise given that investors are always weary of public issues of smaller companies, with lesser information known about its promoters and level of corporate governance.
Perhaps this trends shows that small companies with a good track record and a strong business model might be better bets in the longer run. Also, those belonging to industries with good growth potential or in niche businesses offer better bang for the buck.
Page industries-an innerware manufacture and distributor and Thangamayil Jewellery are two such examples where investors have made good listing gains.
The prime reason that smaller issues tend to give good capital returns is that unlike large issues which are generally focused on improving the debt-equity equation, most small and medium sized companies enter the primary market for expanding their production capacities.
B Madhuprasad, vice chairman, Keynote Corporate Services says, ?In a number of cases, the proceedings from the public issue of a small to medium sized company are used in expanding the production capacity. If such a company doesn?t belong to a capital intensive industry with lower gestation period for its projects, the growth prospects turn better with even a small expansion in its capacity.?