Initial Public Offering (IPOs) is the only word that Dalal Street knows right now. Everybody is obsessing over it. As people are investing in big-ticket IPOs, it seems that the smaller ones are gaining all the traction. Just the other day, a niche-product company Sigachi Industries IPO opened with a mindblowing 252% premium. This was a surprising event, especially because the issue size of the company was just Rs 125 crore. Let’s dive more into it!
What Just Happened?
Nykaa IPO opened a week back with a nearly 80% premium. The company’s market capitalisation crossed Rs 1 lakh crore on its listing day itself. Talking about Sigachi Industries, it produces microcrystalline cellulose (MCC) that is used for various purposes in food, cosmetic and nutraceuticals.
Sigachi’s IPO opened with over 250% premium, and the market capitalisation of the company is about Rs 1,840 crore. Now, if we compare the size of both these companies and their listings, there is a stark difference. Considering Nykaa’s brand value, reach and buzz, it should have gained a higher premium than Sigachi.
Why Are Smaller IPOs Gaining Traction?
Small companies like Sigachi Industries are uniquely positioned in the market. They produce something that the entire market doesn’t. Sigachi’s fundamentals are strong, demand for MCC is sustained, and there are no listed peers in the industry. Analysts believe these remain a few of the major reasons behind its bumper listing. Meanwhile, huge companies do not always have space for growth. On the contrary, the smaller companies have enough space to penetrate deeper into the market.
Why Should This Bother You?
If we take our earlier example, Nykaa, soon after its famous public debut, crashed due to low net profit. The company reported a net profit of Rs 1.2 crore in the July-September quarter as compared to Rs 27 crore in the same quarter last year. The profit slumped due to its marketing costs rising four-fold.
Not many could have predicted this, and that’s why it’s important to check a company’s fundamentals. Post bumper listing, Sigachi continues to enjoy a green candlestick every trading session. This proves to show that fundamentals paint a brighter future than just brand value and weak books.
