BURGER KING – EXIT OR STAY INVESTED?

about 9 months ago
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Burger King India yesterday got listed at a bumper 92% premium over the issue price at Rs.115.35 v/s IPO price of Rs.60. It ended the day at its 20% UC of the day at Rs.138.40, which is more than double the issue price.

If you were holding the shares, obviously logic says that its best to sell and then re-enter again when profit booking eventually comes. But then the small voice of logic gets drowned by the louder voice of greed – what if we wait for some more time and maybe get more returns?

Well, if you have borrowed money to invest in this IPO, two words of advice – get out! Book profits and you have a windfall gain. And if you decide to wait longer, remember its fundamentals are nothing to write home about. As we have stated in our New Issue Analysis, a few more years of negative bottomline is a certainty.

But then its fundamentals were known before the IPO, right? Yet, the issue got subscribed 157 times. So what made the issue attractive? The pricing – in today’s time, Rs.60 to play the market is no big deal. Or is it pure brand equity? For eg: Dominos Pizza maker, Jubilant Food’s PE of 100+ times makes no sense even though it is making 7% net margin.

The common factor in all – huge oversubscription on the back of HNIs. So, why do the HNIs do what they do? Simply because they have huge gains while we are left wondering what happened. HNIs, as we have seen previously too, never need to bring in the entire bidding amount themselves; they take a loan which explains why they wait till the last day to invest. The interest they pay is calculated on a per day basis so makes sense to go for the last day. They stay put for 7 to 10 days.

In all these IPOs, huge subscription by HNIs is a common factor. They bank on two things - high subscription of the IPO, preferably over 100 times and then a bumper listing. And to ensure both, what we learn is that the HNIs pump up the grey market by bidding much more in the IPO than what is reserved for them. This is done deliberately; has nothing to do with the fundamentals of the IPO. This helps push up the total subscription of the IPO, which in turn, pushes up the premium on the grey market, making others think that the issue is having a fantastic response, luring in the truly gullible ones.  

The success of Burger King, apart from HNIs playing the market, also saw huge retail participation, which explains the fascination for brands as its well known, has probably already created customer relations thus eliminating uncertainty. It has been seen historically that companies with a strong brand recognition consistently have a higher share price, much ahead of its fundamentals.

Companies with a strong brand have consistently higher share prices and are less affected by stock market turbulence – that’s what Twitter will rely on while it remains hard at work attempting to improve their services, increase advertising avenues, invest in data centers, hire more employees, and ultimately, broadening the popular micro-blogging platform.

And thanks to the buoyant secondary market, the IPO market performance has been very good. As per a report put out by Business Standard, of the 14 stocks that got listed this year, 10 remain over the IPO price. Burger King and Happiest Minds have had the best listing gains while Route Mobile has given the best gains till date.

So, what does the retail investor do? Most would have to suffice with a very small allocation; one can sell and accumulate the listing gains and re-enter the stock for long term once all this HNI-induced euphoria dies down.

With listing now happening in 6 days from the earlier 12 days after issue closing, listing gains have indeed become the norm. In the long run, it will always, and always be the fundamentals alone that will matter.

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