Financially Forward

The Stock Mock

2nd round

Team Explorer
Team Leader: Sumit Kotadiya
Team Leader’s email: sumitkotadia.sk@gmail.com
Team Members:
Aman Khanna
Daksh Chansouriya
Priyam Sheth
Siya Joshi

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 Case 1: LIC IPO

Introduction
As per the 1956 Life Insurance Act, LIC was established. Since it is directly under the control of the
regulatory authority, it was required to make the appropriate alterations or amendments in order to
issue LIC IPOs. The goal of the LIC IPOs was to increase working efficiency, promote transparency
in management, and raise funds for economic growth.

Problem Analysis
Investors were assessing the company's valuations across the board, taking into account the company's
enormous size of operations and market dominance in the face of rivalry while overlooking the
repercussions of the Russia-Ukraine War and the market's bearish state.
The globalisation strategy has enabled business and investment to transcend national borders. There is
foreign direct investment across the board in industry and the economy. Due to the geopolitical issues
and the escalating inflation, Foreign Direct Investments were inconsistent or incapable of satisfying
the demands of the LIC IPO, and the domestic market most surely was unable to fund the listing since
the market had been in decline.

Inflationary fears, along with investor concerns about economic progress, had a short-term negative
influence on LIC. Additionally, LIC withheld the most current embedded value data for India for the
March quarter. Their majority of money, i.e., 88.9%*, is parked in bonds, and the bond market is at a
10-year low, due to which their profitability margin is under pressure. (*Data from CRISIL)
Even though their embedded value is lowest as compared to their peers, the only positive for their
shareholders is because of their product mix, operating expenses, and persistent ratio, which is low as
compared to SBI Life Insurance.

As we can see in the above chart, LIC’s market share has declined in the last few years.

According to the management, an exercise to determine the value of new business, its margin, and its
embedded valuation in India is being conducted. Prior to its IPO, LIC said that its inherent value was
Rs. 5.4 lakh crore.
On the stock markets, shares of Life Insurance Corporation (LIC), which issued an initial public
offering (IPO) for Rs 21,000 crore, dropped 5.85 percent to Rs 668.20 as anchor investors unloaded
their holdings after the lock-in period ended.

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As a result, the stock had lost 29.58 percent of its value from the Rs 949 IPO offer price, meaning that
investors have effectively lost over a third of their LIC IPO investment. The market value of the
shares had also decreased to Rs. 4.22 lakh crore.

The aforementioned are the primary reasons for the LIC stock's nearly 25% decline since its debut.

Suggestions on what LIC might have done to improve its performance:

- The LIC's valuation could have been more beneficial and alluring to investors.
- Given the geopolitical circumstances and the bearish market sentiments at the time the IPO
was filed, LIC could have waited for the correct timing and a stronger market sentiment.
- LIC could have acquired reliable anchor investors or made sure that shares were not promptly
unloaded after the lock-in period.
- LIC should seek more domestic institutional investors and mutual fund houses as anchor book
investors rather than relying on foreign institutional investors for nearly 5,000 crores.

Case 2 Prince Pipes IPO

Introduction
Prince Pipes and Fittings Limited (PPFL) is one of India’s largest PVC pipe manufacturers & multi
polymer processors. Incorporated in 1987, and a highly regarded PVC pipes brand. Prince Pipes IPO
had the objective of repaying outstanding loans of the company, financing the project cost towards
new manufacturing facilities and upgrading equipment at manufacturing facilities.

Problem Analysis: -

In filing with SEBI, Company in their DRHP said that “Our revenue from operations is less in the first
quarter of a fiscal year compared to each of the other three quarters of a fiscal year. Our revenue from
operations is more in the fourth quarter of a fiscal year compared to each of the other three quarters of
a fiscal year.” The company made this disclosure without stating the actual reason which makes the
company a Seasonal business and does not make them unique or contain any USP.

Rising prices of raw material and PVC prices in international markets due various circumstances is
one of the reasons due to which the company is suffering from margin pressure and in the recent past
posted 5% growth in revenue but reported a loss of 24 crore in Q3(Sep '22). Hence margin pressure is
clearly seen.

Till Dec’19 company’s revenue has grown at CAGR of roughly just 8.25%* which is at a very slow
pace as compared to their peers. Even though Company valued at the lowest P/E of 9.26* which was
slowest among the peers. But as per market sentiments at the time the market sentiments where not
any company wanted to make their opening at discount and ended up in red and became the 5th IPO in
the year 2019 who opened in negative on Dalal Street.

Prince Pipes filed Red Herring Prospectus (RHP) in the month of December, till then they have not
disclosed their financial number for Q2, which raised various questions ijn the mind of their potential
investors.

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One of the reasons for their failure was to communicate with their stakeholders informing them about
the leverage position of promoters as there were rumours across the country that they have pledged
some part of their stake in lieu of some kind of personal debt. But they issued the statement justifying
their position and rejected the claim of false rumours on 31st December,2019 i.e. after their unwanted
opening in the market.

Solutions: -

- The company should focus on their core business and make strong fundamentals and try to reduce
the expenses through various cost cutting methods and reduce the inventory till the raw material
prices are not in control.

- Proper disclosure should have been made regarding non-compliance of legally declaring their
unaudited Q2 results at the time of IPO.

- Valuation could have been made more attractive and shareholder friendly to attract more investors

- The company could have built good financial numbers and after a few quarters with great revenue
could have asked for money from the public.

- Their plan for the use of money was not crystal clear which must be told in the prospectus more
clearly and loudly.

*= For the year ended 2019.

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