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Low Quality IPO’s – Sign of a Market Top?

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General stock market Wisdom tells us that low quality IPOs are a sign of a market top . Going by the recent spate of low quality issues in the Indian market . Goenka Diamond,Ganesh Jewellery,Pradip Overseas and now two more in the shape of Nitesh Estates and Tawalkar Gym  could indicate one. However these issues are not being heavily oversubscribed which could give the doubt to the theory of market top.

How can  one bring Nitesh Estates to the IPO market is a wonder,. Here are some of the main points from the IPO

1) Defaulted on debt in 2008-2009

2) Earnings of around 20p which would imply a P/E of more than 250

3) Operating Margins of 5-10%.

4) Entering into a more competetive middle market segment of real estate.Most of the revenues comes from low end contract business

No wonder these guys are hiring a host of investment bankers because the bankers would pretty  much need most of their buddier in the AMCs to buy this thing. I would not touch this with a 10 foot pole. Best of luck to the people who will.

Compared to Nitesh , Tawalkar’s looks like a bed  of roses.However the valuations seems quite absurd for a company of this size ,margins. Barriers of entry seems non existent , while the company does not seem to possess much expertise in the processes or technology. Most of the profits goes in servicing the debt. With Rs 7 crore net profits in the previous fiscal year and the implied  Rs 280 crore market cap , the P/E would be 40. Wow why would anyone pay so much for a small cap gym company.

If anyone told you to pay Rs 4 crore for your neighbourhood gym which generates Rs 10 lakhs per year you would think the guy to be half crazy. I know it has great growth and all that . That means it might generate Rs 20 lakhs in great times . Even then Rs 4 crore would seem bit expensive.

Both the above companies have related party tranactions which would rival Enron ( maybe I am exagerrating here ) adding to the risk factor

Well for  Tawalkars , maybe there might be something to the “uniqueness” story making its 26 times oversubscribed ( 35 times by the “sophisticated” institutional investors) ..


Sneha Shah

I am Sneha, the Editor-in-chief for the Blog. We would be glad to receive suggestions, inputs & comments on GWI from you guys to keep it going! You can contact me for consultancy/trade inquires by writing an email to

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