Newly listed companies beat broader market in sales, profits
Energy levels of new entrants confer marginal advantage over established rivals.
BL Research Bureau
The 60-odd companies that went public this year with initial public offerings have delivered a superior performance on both revenue and profit growth than their more seasoned counterparts trading on the country’s stock exchanges.
Companies that listed in the past seven months have managed overall revenue and profit growth at 52 per cent and 76 per cent respectively for the September 2010 quarter.
In comparison, companies making up the broader market, represented by the CNX 500, recorded a revenue growth of 19 per cent while their net profits grew 20 per cent. About seven in every 10 stocks in the IPO basket have outpaced the broader market in revenue growth while six in 10 outpaced profit growth.
Twenty-seven companies that came out with IPOs this year and which have declared their September 2010 quarter results with the corresponding figures in 2009 have been considered for this analysis.
The infrastructure, IT and realty sectors have seen the most number of IPOs. However, there is no sector trend that emerges for outperformers.
Newly-listed companies also improved their net profit margins to 19 per cent from 17 per cent between the September 2009 and 2010 quarters, even as net margins for the CNX 500 companies stayed flat at 12 per cent in the same periods.
Interest costs for the debutants dipped as a good many public offers used the funds raised to repay debt.
Jubilant Foodworks, for example, reduced debt from Rs 83.6 crore to Rs 44 lakh.
Collective interest outgo as a percentage of sales dropped to 17 per cent in the September 2010 quarter against the 25 per cent in the same period in 2009.
However, if one compares the performance of the IPO companies to other listed industry rivals, it turns out that just over half have outpaced the latter on both counts. Twenty of the 27 IPO companies had companies in the same business that were already listed. Eleven of these have bettered their counterparts in revenue growth in the September 2010 quarter. For instance, ARSS Infrastructure’s revenues grew 73 per cent even as closest comparable Tantia Construction clocked a 22 per cent revenue growth.
On profit growth (operating profits), nine have outpaced their rivals. Parabolic Drugs, for example, registered growth in operating profits (adjusted for other income) by 18 per cent while peer Nectar Lifesciences managed a 9 per cent profit growth.
However, there were companies such as Man Infraconstruction, which surpassed closest comparable BL Kashyap in revenue growth (43 per cent against 39 per cent) but grew operating profits by just 5 per cent while BL Kashyap recorded a 12 per cent growth.
The evidence seems to suggest that the energy levels of a new entrant do confer some marginal advantage relative to more established rivals. However, the incumbents do continue to enjoy some early mover advantage when it comes translating a given level of revenues into a larger operating surplus.
Endorsing IPO companies with superior performance, stock market investors who have made a portfolio of the IPOs would have Rs 119 for every Rs 100 invested. Investments in the CNX 500 at the same time would have earned Rs 114 for every Rs 100 invested.