Need to understand how to evaluate an IPO to understand about the valuation

IPOs
1

Hi guys,

I have been working hard to invest and trade properly understanding technical and fundamental analysis, but when I need to study IPO i normally apply basis GMP for both mainline and SME ipo which Ik it is wrong can some one help with what they follow and metrics to understand the right valuation of the company

2

Some of the pointers that I personally track are:

  • The sector(s) and the growth prospects in which the company operates. - The attempt here is to get a broad picture of the company’s opportunities to grow.

  • Check the market share of the company and how it is positioned within the sector business wise.

  • Compare valuations of the company with its peers. PE ratio, debt levels, overall strengths, weaknesses etc.

  • Check the industry cycle. For example, if any booming sector like renewable energy, solar related companies are coming up. I’d be slightly cautious keeping in mind the short term euphoria. I’d prefer low key listing and steady growth instead of short term reward.

  • I’d also check the past returns of that sector and its peers.

  • Specific to IPO, I’d check what’s the issue size and how the company plans to use the proceeds. If it’s an exit for promoter at higher valuations or if the money is used to expand business operations or reduce debt.

  • Management calibre. Often underestimated. But studying the track record of promoters is a useful exercise too.

3 Likes
3

That is very helpful, thanks @Meher_Smaran

4

Will you not apply if your value is less than ipo price but GMP is 100%?

5

Some points i track are

  • First I check GMP it should be atleast 50% (only in case of mainboard I avoid GMP for SME its risky bet)
    There are always smarter people in market so for good companies gmp will be high

Dont just stop at gmp its first level filter (this will half your work)

pick companies with good gmp and check further points
check about companies, sector , peers
how peers are performing, how sector is doing, government policies of that sectors,

then also check why it needs money from ipo i.e objective of IPO

if its only for debt reducing you might have to be cautious and check RHP for detials