Today, November 18 is a big day for the PhysicsWallah IPO. It will debut on the exchanges, but will it be a shock or surprise for the investors? The current trend seems to indicate that it could see a slight uptick, given the 13% GMP surge as of now. However, the street is concerned after the performance of the listed IPOs last week. The muted subscription data is also adding to investor concerns.
FinancialExpress.com spoke with a host of market experts on how they expect the issue to list and the outlook over the longer term.
Will PhysicsWallah IPO deliver a shock or surprise on listing day?
Here is a quick analysis by top market voices on how they expect the PhysicsWallah issue to list –
#1 PhysicsWallah IPO: ‘Overpriced’
Speaking on the PhysicsWallah IPO and the valuations, market veteran Arun Kejriwal said, “As of today, it’s an overpriced issue. Whether it will be a long-term buy, only time will tell. More importantly, after being listed, they need to watch out for their performance when they declare quarterly numbers. You need to understand – selling the issue, talking of the future in a veiled manner, and relying on the past is much easier than when a stock has listed. There is no place to hide after that.”
Outlining the key concerns with respect to PhysicsWallah business model, Kejriwal outlined that “The attrition rate is very high. Approximately 50% of revenue goes towards meeting staff and teacher salaries; the kind of margins that they are talking about are difficult to sustain. People have doubts about that model. Another thing is that they are now banking more on an offline model. They are investing in capex for building more classrooms.”
According to him, the big question is, “Why invest in capex for going back to the bricks-and-mortar story, building classrooms, and having revenue coming from there?” He is not very convinced about charging people roughly 10 times more than what they pay online. So it’s a little confusing. Only time will tell what happens.”
#2 PhysicsWallah IPO: Valuation the big worry
Speaking on the issue, well-known fund managers and an industry veteran, Sandip Sabharwal of Asksandipsabharwal.com also reiterated the valuation concerns, “The valuations of PhysicsWallah significantly high at current levels. Not investing at current levels.”
#3 PhysicsWallah IPO: What’s the USP of the business?
Speaking on the PhysicsWallah issue, Deven Choksey, Managing Director of DRChoksey FinServ raised two key concerns. He believes that the USP of the business model is technology-enabled and replaceable, “I think there is no unique proposition per se in this company. Technology and the platform are enablers; they are not substitutes. I think the online model gives the strength of a demography and distribution. The substitution for this entire activity is only the product and the product innovation. I think the product innovation proposition is not being seen as loud as it has been claimed in the IPO prospectus.”
His other concern is the valuation based on the current profitability. He raises concerns about “paying such kind of value for a small size of profit or for that matter, losses that the company is earning. History has proved time and again that valuation based on revenue can never be sustained post listing. So one has to be careful.”
#4 PhysicsWallah IPO: Offline business expansion a worry
Sunny Agrawal – Head of Fundamental Research, SBI Securities expects the IPO to list at par. “The company has been doing pretty well, with steady sales/EBITDA. However, offline business is a drag on the profitability of the company. As a result, the street would like to have more clarity on the path to profitability. It needs a clearer understanding of when the offline business starts delivering – how it is going to shape up.”
Sustaining the profitability is the big question that most analysts are concerned about as the Rs 3,100.71 crore PhysicsWallh issue readies for its D’Street debut on November 18. One the one hand, they are looking for clarity with respect to the future of offline classes in an environment where everyone’s looking for online solutions, and on the other, the valuation is the big question mark. What’s perhaps making them even more worried is how the earnings have panned out for some of the recent listings.