Neelam Linens IPO Listing: Stock lists at 66% premium on NSE SME

Neelam Linens IPO Listing

Neelam Linens IPO Listing: Strong Opening with Volatility, But Investors Still in Profit

Neelam Linens and Garments’ ₹13 Crore IPO, which was open for subscription between November 8-12, 2024, has officially been listed on the NSE SME platform today.

Despite a strong debut, the stock faced significant volatility shortly after listing. While the shares surged to ₹40.05 on opening, a quick correction saw the stock hit the lower circuit at ₹38.05.

Nevertheless, even after the price dip, investors are still enjoying a substantial listing gain of over 58%.

IPO Details: A Strong Response Despite Market Uncertainty

The Neelam Linens IPO, which raised ₹13 crore, was launched amid a somewhat cautious market environment.

The subscription period from November 8-12 attracted overwhelming demand, with the IPO being oversubscribed by an impressive 91.97 times.

This level of interest signals a strong belief in the company’s growth prospects, despite broader market conditions that have been relatively subdued.

Here’s a breakdown of the IPO subscription details:

• Qualified Institutional Buyers (QIB): Subscribed 15.40 times
• Non-Institutional Investors (NII): Subscribed 273.47 times
• Retail Investors: Subscribed 57.82 times

The overwhelming response from the NII segment stands out, especially considering that high-net-worth individuals (HNIs) and family offices typically prefer investing in IPOs with strong growth potential and stability.

Retail investors also displayed significant interest, with their portion being filled over 57 times, a clear reflection of confidence in the company’s prospects.

Neelam Linens IPO Listing and Price Action: A Rollercoaster Ride

On the first day of trading, Neelam Linens shares opened at ₹40.05, marking a 66.87% listing gain from the IPO issue price of ₹24.

This was a strong entry for the stock, indicating that IPO investors were initially rewarded with a positive return. However, the excitement was short-lived as the stock quickly faced selling pressure.

Within a few minutes of listing, the stock began to drop, eventually hitting the lower circuit limit of ₹38.05.

The circuit breaker, which halts trading in a stock once it hits a specific price range (usually a certain percentage decline), was triggered as the stock fell sharply.

The price remained at ₹38.05 until market close, and the stock settled at this level.

Despite the immediate drop, IPO investors are still in profit, with an overall gain of 58.54% from the issue price of ₹24.

While the drop raised concerns about the stock’s near-term performance, it’s important to consider that IPOs often experience high volatility on their listing day due to market conditions, investor sentiment, and post-listing adjustments.

What Caused the Volatility?

The dramatic price movement on listing day can be attributed to several factors, including:

• Market Sentiment: The overall market environment has been relatively cautious, with investors exhibiting a more risk-averse approach. When stocks debut in such conditions, they are often more susceptible to quick price corrections, as seen with Neelam Linens.
• Profit Booking: After an initial jump in the stock price, investors may look to lock in profits, leading to a quick sell-off. This behavior is particularly common among traders who were looking for short-term gains, which can contribute to sharp price declines post-listing.
• Lower Circuit Limits: The lower circuit in Indian stock markets is set at a specific percentage below the opening price, usually around 5-10%. Once the stock hits the lower circuit, trading is halted, preventing further downward movement for the day. This mechanism can create sharp price fluctuations in the short term, as investors react to news, market conditions, and initial trading volumes.

Despite these fluctuations, the 58.54% profit that IPO investors are still holding onto suggests that there is still optimism surrounding Neelam Linens, especially when looking at the long-term potential.

Neelam Linens and Garments: Company Overview

Founded in 2010, Neelam Linens and Garments specializes in manufacturing a range of home textiles, including bedsheets, pillow covers, towels, rugs, and other similar products.

The company primarily caters to the discount retail segment, supplying its products to stores and distributors in the US and Australia.

Apart from its core manufacturing and distribution activities, Neelam Linens operates in the licensed product market.

The company purchases licenses from exporters and resells them to importers, earning a margin on the price difference.

This diversified business model helps the company hedge against fluctuations in demand in its core product categories.

Neelam Linens’ clientele includes well-known names such as:

• US Polo Assn.
• Big Lots
• 99 Cents Only Stores
• Amazon
• Meesho
• Vijay Sales

The company’s strategic focus on both the international market and the domestic e-commerce sector provides it with multiple revenue streams, which positions it well for sustained growth.

Financial Performance: A Mixed Yet Positive Outlook

Neelam Linens has experienced some financial volatility in recent years, but overall, the company’s performance shows a positive growth trajectory.

• FY 2021: The company reported a net profit of ₹41.53 lakh.
• FY 2022: Profits surged significantly to ₹2.99 crore, marking a sharp improvement.
• FY 2023: The profit dipped slightly to ₹2.38 crore, showing some level of fluctuation in its profitability.
• FY 2024: Neelam Linens bounced back with a net profit of ₹2.46 crore.

In terms of revenue, the company has seen a consistent upward trend with a compound annual growth rate (CAGR) of over 5%.

The company’s revenue reached ₹104.74 crore in FY 2024. This steady revenue growth is indicative of the company’s ability to expand its market reach and diversify its customer base.

Q1 FY 2024-25 Performance: A Solid Start

For the first quarter of FY 2024-25 (April-June 2024), Neelam Linens reported a net profit of ₹80.46 lakh and revenue of ₹21.95 crore.

This strong start to the new financial year suggests that the company is on track to maintain its growth momentum, despite the challenges in the broader economic environment.

Final Remarks: Long-Term Outlook Despite Short-Term Volatility

While Neelam Linens IPO faced some early volatility, with the stock experiencing a sharp price correction after a strong listing, IPO investors are still in profit.

The company’s diversified business model, consistent revenue growth, and solid client base suggest that Neelam Linens has significant potential for long-term value creation.

For investors with a longer-term horizon, the current market fluctuations may represent an opportunity to acquire shares in a company with a solid growth trajectory.

However, short-term traders should be mindful of the stock’s volatility and market conditions that could continue to influence price movements in the near future.

Ultimately, the Neelam Linens IPO story is a reminder of the inherent volatility in IPO listings, but also a testament to the company’s potential to emerge stronger in the coming years.