Newmalayalam Steel IPO Listing: Stock lists flat at Rs 90 apiece on NSE SME
Newmalayalam Steel IPO Listing
Newmalayalam Steel IPO Listing: Flat Entry Followed by Lower Circuit – A Major Setback for Investors
The highly anticipated IPO listing of Newmalayalam Steel, a Kerala-based manufacturer of galvanized pipes, tubes, and sheets, on December 27, 2024, left investors with a bitter taste.
Despite a strong response during the subscription period, the stock experienced a lackluster debut and faced a sharp decline soon after, hitting the lower circuit limit on its first trading day.
This has raised concerns about the company’s future prospects and left IPO investors facing immediate losses.
The IPO Journey: Strong Subscription but a Disappointing Listing Performance
Newmalayalam Steel launched its Initial Public Offering (IPO) to raise ₹41.76 crore, which was open for subscription from December 19 to December 23.
The IPO was aimed at offering 46.40 lakh new shares with a face value of ₹10, priced at ₹90 per share. The company’s strong position in the manufacturing of galvanized pipes, tubes, and sheets, along with its expanding solar power capabilities, generated significant investor interest, leading to an overwhelming response during the subscription period.
The IPO was subscribed a staggering 50.69 times in total, indicating high demand among investors. In the Qualified Institutional Buyer (QIB) category, the issue was subscribed 1.26 times, while the Non-Institutional Investors (NII) portion was subscribed 24.63 times.
The most impressive response came from retail investors, who subscribed to the IPO a massive 87.7 times. Given this overwhelming demand, expectations were high that the stock would list at a premium, offering immediate listing gains to IPO investors.
However, contrary to expectations, the stock of Newmalayalam Steel debuted at a flat price of ₹90.00 on the NSE SME platform, matching the issue price.
This resulted in no immediate listing gains for investors, which was a disappointment considering the strong demand during the subscription phase.
The stock’s performance continued to worsen after its listing, as it swiftly dropped to hit the lower circuit limit of ₹85.50, marking a 5% decline from the issue price.
At the end of the first trading day, the stock closed at ₹85.50, and the IPO investors were left facing an immediate loss.
What Went Wrong? A Closer Look at the Decline
While the flat listing might have been a letdown for many, the significant drop to the lower circuit limit on the very first day raised several questions.
The lower circuit limit is a mechanism used by exchanges to prevent excessive volatility by restricting a stock from falling below a certain price point.
When a stock hits its lower circuit, it cannot be traded until the price moves above that level. In the case of Newmalayalam Steel, the stock’s failure to perform after such a strong subscription response suggests a few potential reasons for this dismal performance:
- Valuation Concerns: Investors might have felt that the ₹90 issue price was not justified by the company’s financials, especially considering the declining profit margins and revenue in recent years. The company’s performance in FY 2024, where both net profits and revenue showed a decline, may have raised doubts about its long-term growth prospects. The flat listing and subsequent drop could be a reflection of these concerns.
- Market Conditions: The broader market conditions could also have played a role in the weak listing. Given the volatility and uncertainty in global markets, investors may have been more cautious, leading to the sell-off of stocks that did not meet their expectations.
- Profit-Taking by Early Investors: With the IPO being oversubscribed by a large margin, a significant number of institutional and retail investors might have seen an opportunity to sell their holdings on listing day, especially in anticipation of a price surge. The lack of such a surge could have led to a mass exit, pushing the stock down to the lower circuit.
- Weak Investor Sentiment: Even though the IPO was oversubscribed, the lack of immediate gains or positive movement on the first day could have dampened investor sentiment, particularly among those looking for short-term gains. This could have contributed to the downward pressure on the stock price.
Financial Performance: A Red Flag for Investors?
A deeper analysis of Newmalayalam Steel’s financials reveals some concerning trends. The company reported a net profit of ₹6.73 crore in FY 2022, but this figure fell to ₹6 crore in FY 2023 and ₹4.27 crore in FY 2024.
Over the same period, its revenue declined from ₹323.61 crore in FY 2022 to ₹359.96 crore in FY 2023, and further to ₹303.15 crore in FY 2024.
This consistent decline in both profits and revenues over the past few years raises questions about the company’s ability to sustain growth.
While Newmalayalam Steel has been expanding its solar power capacity and upgrading its manufacturing facilities, the financial decline suggests that it may be struggling to achieve operational efficiency and drive revenue growth.
The company has made efforts to diversify its business, such as the expansion of its solar power generation capacity, which could offer potential future growth opportunities.
However, in the face of declining financial performance, investors may be questioning whether the company is truly in a position to capitalize on these new initiatives.
Plans for Utilization of Funds
The funds raised from the IPO are intended to be used for a variety of purposes, including technical upgrades of the manufacturing facility, expansion of the solar power generation unit, construction of new civil infrastructure, and addressing working capital requirements.
However, given the company’s recent financial track record, it remains to be seen whether these investments will translate into the desired results.
Despite these efforts, the weak debut performance of the stock highlights the uncertainty surrounding the effectiveness of these initiatives in reversing the company’s financial decline.
Additionally, the general corporate purposes and marketing expenses to be covered by the IPO funds do not appear to be sufficient to inspire investor confidence at this stage.
Final Remarks: A Tough Road Ahead for Newmalayalam Steel
The disappointing IPO listing of Newmalayalam Steel serves as a stark reminder of the risks involved in investing in stocks, especially in the IPO market.
Although the company received a strong response during the subscription phase, the lackluster debut, combined with the subsequent decline in the stock price, highlights the challenges it faces in convincing investors of its long-term potential.
At present, the stock’s performance raises concerns about the company’s future prospects. While Newmalayalam Steel has solid plans to upgrade its facilities and expand its solar power capabilities, the market appears to be skeptical of its ability to execute these plans effectively.
Investors will be keeping a close watch on the company’s upcoming financial results and how it navigates the challenges ahead. For now, IPO investors are left with a 5% loss on their investment, and the stock’s future remains uncertain.
