India's IPO market is experiencing a landmark year, with a staggering ₹1.21 trillion raised across 72 listings so far, reflecting strong investor sentiment. With high-profile initial public offerings stealing the spotlight and others grabbing huge interest from investors, a select few also made triumphant market debuts.
But how is the josh now? Not high, it seems, as these newly listed companies were dealt a reality check in the financial second quarter (July-September).
A Mint analysis of the largest and most successful offerings of the year reveals a sobering truth: only 41% have lived up to the hype when it comes to earnings (i.e., they outperformed their sector on both revenue and profit growth in Q2).
The analysis covered 28 major IPOs: 20 IPOs bigger than ₹1,000 crore (but of these, six were excluded because they had made a loss in either Q2 of this year or the previous year) and all 14 IPOs that were subscribed more than 80 times.
In their first post-listing earnings season (for a majority of them), the initial euphoria around most of them seems to be fading.
To gauge their performance, we conducted a detailed comparison of the year-over-year growth of their top lines and bottom lines on a standalone basis (for those that have declared their results so far) and in relation to industry benchmarks, based on Capitaline database classification.
The record-breaking IPO of Hyundai Motor India failed to ignite enthusiasm and the stock saw its post-listing performance further deteriorate after it posted a 9.1% drop in revenue and a 16.5% decline in profit-after-tax in Q2. This underperformance is particularly striking when compared to the broader auto sector’s mixed bag of results.
“On an aggregate basis our universe of auto players has shown slow growth on a year-on-year basis, reflecting the slowdown in the consumption cycle and the decline in infra spending. Albeit two-wheeler players outperformed the back on the back of rural recovery and sustainable margin performance,” said Abhishek Gaoshinde, deputy vice president of research at Sharekhan by BNP Paribas.
Bajaj Housing Finance, which also had a much-hyped IPO, saw a different outcome. The company outperformed the broader financial services sector, reporting a 26% increase in revenue and a 21% jump in net profit in Q2.
On the other hand, Waaree Energies, India’s leading manufacturer of solar PV modules, delivered a shock to investors. With 18.5% profit growth and a 3% decline in revenue, primarily due to lower export volumes, it underperformed the broader sector, which saw 25% and 48% growth in revenue and profit, respectively.
Zooming out, a little over a third of the ₹1,000 crore-plus IPOs managed to outperform their respective sectors on both revenue and profit growth, highlighting the mixed bag of results in the IPO market this year.
While bigger is not always better, companies with the most-hyped IPOs fared relatively well. Half of the 14 most subscribed issues managed to outperform their respective sectors in the second quarter. Among the winners, KRN Heat Exchanger and Refrigeration, a leading manufacturer and exporter of aluminium and copper fins, reported a 39.4% increase in revenue and a 41% jump in profit, outdoing its sector’s disappointing performance.
Orient Technologies and Saraswati Saree also performed strongly compared to their sectors, with year-on-year revenue growth of 49% and 27%, respectively, and bottom line growth of 63% and 23%.
On the flip side, Gala Precision Engineering, a leading nuts and bolts manufacturer, faced significant setbacks, seeing an 8% drop in revenue and a 3% fall in profits, lagging its sector’s 1% and 7% revenue and net profit growth.
But are initial results an indication of the financial future of newly listed companies? Not quite.
“Investors should assess the future earnings growth potential of these companies and determine whether the sector's current valuations are justified. The decision should be based on the strength of their teams and anticipated performance moving forward,” said Deepak Jasani, head of retail Research at HDFC Securities.
Initial results are nonetheless important, some argued.
“For newly listed companies, the results are critical as they provide the first comprehensive financial insights post-IPO, helping investors assess the performance against the expectations set during the listing,” said Palka Arora Chopra, director at Master Capital Services. “However, interpreting the results requires detailed analysis and experience, as several factors come into play. Many recent IPOs were priced based on optimistic growth assumptions.”
The analysis established a strong correlation between a company's Q2 financial performance and its subsequent stock market returns. Two-thirds of newly listed companies experienced significant price movement on the day of their results, based on how they performed.
For instance, Hyundai Motor's stock fell about 1% on its results day. However, it's important to note that about 30% of recently listed stocks declined on their results day, some despite strong performances. This suggests that profit-taking might have played a role.
KRN Heat Exchanger & Refrigeration and Bajaj Housing Finance are prime examples of companies that experienced a marginal decline in their stock prices on results day despite impressive net profit growth. It should be noted that the broader market sentiment on these days was also weak.
“Recent Q2 earnings reports have become crucial indicators for investors assessing the financial health of newly listed companies. About two-thirds of newly listed stocks have shown price movements that align with their Q2 performance, suggesting that these earnings reports significantly impact investor sentiment and stock valuations,” said Atul Parakh, CEO of online investment and trading firm Bigul.
However, experts emphasised the importance of patience when investing in newly listed companies.
“Stories, themes and relative attractiveness on growth matrix versus the rest of markets are the key themes in the IPO market. Every good company listed on the stock market had an IPO sometime in their life. Hence, investors need to be very patient with companies, evaluate them properly, and most importantly, read the draft offer document carefully,” said Manish Bhandari, founder, CEO and portfolio manager at Vallum Capital Advisors.
“IPO companies have done well, but we are witnessing general weakness in the earnings cycle of the BSE 500, and they aren't immune to this slowdown,” he added.
IPOs are often priced based on growth projections, with valuations reflecting optimistic assumptions. The first earnings post-IPO provides a window into whether these assumptions could translate into actual financial performance, added Chopra of Master Capital Services.
“The stock market often exhibits a short-term bias, especially with newly listed companies. Strong Q2 results can reaffirm confidence and sustain positive momentum, while disappointing numbers may trigger significant corrections,” she added. “While short-term fluctuations and market volatility can create temporary misalignments, sustained growth in a company’s earnings typically drives the stock price movement over time.”
Newly listed companies are required to disclose their financial results for the quarter or financial year immediately succeeding the period of the financial statements included in the offer document.
“Timeline for this disclosure depends on three factors: within 45 days with respect to their quarterly results, within 60 days with respect to their annual results, and within 21 days from the date of listing for each of the foregoing periods,” said Arka Mookerjee, partner at JSA Advocates & Solicitors.
Complexity also arises from the lock-in period for anchor investors. Half of the shares allotted to anchor investors are locked in for 30 days, Arka explained. This often adds to the volatility of the stock.
Kaushik Mukherjee, partner at IndusLaw, highlighted another complication. If a company’s listing is approved after a financial reporting deadline, the 21-day post-listing rule is critical. This ensures issuers disclose results promptly even when deadlines overlap with the listing timeline.
Issuers often face pressure when financial disclosures reveal unfavourable results shortly after listing. With IPO prospectuses sometimes reflecting financials up to six months old, investors are left without updated data until post-listing disclosures. Poor results during this period can erode investor confidence and drag stock prices down.
“Newly listed stocks lack price benchmarks and trading history, making them particularly volatile,” explained Mukherjee of JSA Advocates. “Investors react strongly to financial disclosures, especially when they don’t align with expectations. Disappointing results post-listing often cause steep price declines,” he added.
