PSU IPOs not for the long haul. Is IRCTC a breed apart?

If you are still undecided what to do with your IRCTC shares, here is cue.

No matter how good or bad the listing performance, PSUs have a record of a faltering post listing. Of the 17 central public sector enterprises that came out with their initial public offering (IPO) in last 10 years, 13 have given negative returns since their listing.

Indian Railway Catering and Tourism Corporation (IRCTC) more than doubled share price on debut on Monday.

Take for instance, The New India Assurance (NIA). It has created a splash at the time of its listing in November, 2017. Ever since, it has been the biggest loser among PSU IPOs, eroding about 90 per cent of value. Since November 2017, the stock has crashed from an issue price of Rs 800 to trade at Rs 97.20 on Friday.

Energy sector giant Oil India, which was listed in 2009, has since shed 85 per cent of its issue price.

Half of the PSU IPOs in the last 10 years debuted at a discount and most of them have continued to slide from there on.

Deven Choksey, Managing Director of KRChoksey Investment Managers, blames unnecessary governmental interference for such performance. “Investors do not like government interference after it divests a company. That is one thing which is very obvious. If they divest and still continue to interfere, they would probably spoil the company,” he said.

Choksey doubts if the case with IRCTC be any different, given high governmental stake in it. “The government stake remains at 87 per cent. Till the time the government brings down its stake, it will continue to interfere in the businesses. Also, I think its approach will be quite different from a normal private sector company. Given that kind of equation, it is very difficult to say the success of listing would get translated into further successes in the business.”

He gave the example of Hindustan Zinc, in which the government is a minority shareholder. Vedanta acquired a majority stake in the loss-making venture in 2002-03 and since then it has been turned into one of the largest zinc producers in the world.

Among the PSU stocks that today trade higher than their issue prices, each one is in the market for less than 18 months.

And their post-listing performance has not been exciting. Rites, Garden Reach Shipbuilders & Engineers and Mishra Dhatu Nigam — all debuted in 2018 and are up 35-55 per cent from their issue prices. Rail Vikas Nigam, which got listed earlier this year, is up 35 per cent.

Deepak Jasani, HDFC Securities, is positive about the railway-focused PSUs, but see some risks as well.

“Rail stocks that have hit the market in last one year or two have been priced very attractively and there is assured business for them. The current PEs are quite reasonable. There are upsides there also. [However,] the dependence on railways is a negative in terms of client concentration risk and possible policy changes that can hurt such companies. One will have to be aware of these risks in railway companies,” he told ETNow.

On the question if other government IPOs that debut on bourses going ahead will emulate IRCTC’s feat, Jasani said they might not see similar upside on listing.

The government is planning to sell stakes in other PSUs like BPCL, BEML, Concor, Shipping Corporation of India, THDC India and Neepco. A group of secretaries approved the plan last month.

Sanjiv Bhasin, EVP - Markets at IIFL Securities said there could be turnaround for PSU stocks if the planned strategic sales go through. “The real elephant in the room has been that they have not been able to sell outside India, i.e, no strategic disinvestment. If that happens, it will set the cat amongst the pigeons, particularly if BPCL and Air India go through. We are looking forward to the privatisation of BPCL, which would see a rerating of all PSU stocks across the board in the next three to six months,” said Bhasin.

Bhasin is bullish on IRCTC and see extreme potential for the company. He said it could turn out to be a D-Mart or IndiGo. “You know the pedigree of business they are in. And, if you actually privatise the railways then IRCTC could gain on that account. It may look stretched now but it will definitely command higher premium because of this.”