Uncharted Waters: Dalal Street Sees Companies Without Peers Encash The Bull Run

The great IPO bull run of FY24 has brought in many interesting companies into the equity fold — be it buffalo meat exporters, fish-paste makers, cryogenic equipment manufacturers, drone companies and more such.

As many as 14 companies, including Ideaforge, Zaggle Prepaid, Honasa Consumer and more which debuted last fiscal year, had no listed peers. That's around a fifth of the 76 companies that listed on the bourses in FY24. More so, seven more companies like Yatra Online and Gandhar Oil had only one listed peer.

While new-age companies had been slow to enter markets last year, their fresh business models found a lot of takers. Experts say that it's because of the extensive investor interest in IPOs that's allowed these specialised players to seek public funding.

"The market has now matured, and investors are not wary of something new. Investors are taking time to understand and value a company, and are happy to deploy capital into them," says Munish Agarwal, managing director and head of equity at Equirus Capital.

He had earlier brought in companies like airport service aggregator Dreamfolks, as well as high-end computing solution provider Netweb Technologies. "There are a lot of companies where competitors are not listed or no peer set exists in the market. But when a business case is compelling, investors will come," Agarwal added.

Ratnaveer Precision, which makes finished stainless steel washers, solar roofings; Platinum Industries, which makes PVC stabilisers; Aeroflex, which makes cryogenic equipment; Mukka Proteins, which makes fish paste, fish oil, etc.; are some of the companies which raised anywhere between Rs 200 and Rs 350 crore from the mainboard IPO market.

In FY24, small-cap and mid-cap indices had a bull run. While Nifty Smallcap Index 100 rose over 700 points, the Nifty Midcap Index 100 jumped by over 60%.

While the going was good in FY24, releasing DRHP of IPOs without a peer set can be a double-edged sword, informs market expert Arun Kejriwal, founder of Kejriwal Research Investment Services. In many cases, choosing or not choosing a peer set is a decision that's made by merchant bankers and promoters.

"Promoters like to say that they’re unique and hence, chose not to have a peer set. When the market is in good condition, they can get away with it. But when the market has not declared a peer set, and market conditions turn adverse, they can't later go back and introduce a peer set," says Kejriwal.

Honasa Consumer, for example, is the first D2C company to list on the bourses. While its distribution strategy keeps it apart and is also a new-age company, many listed majors have beauty and personal care businesses.

Even Ideaforge listed MTAR Technologies and Data Patterns as proxy listed players. HMA Agro, which exports buffalo meat, also provided a list of unlisted players like Al Hamd Agro as unlisted peers.

It's a mandate by markets regulator SEBI that IPO documents must include valuations of peer set, where applicable. The process of getting an approval without a peer set can be tough and cause a lot of back and forth between the regulator and companies, inform experts.

Yet, a few decide to take the plunge, as even a select few could receive a uniqueness premium, as per experts.

"Investing in a company belonging to a new sector without listed peers can potentially offer tremendous upside. These companies can end up setting the valuation benchmark," Pranav Haldea, managing director of Prime Database Group, said.

For example, when Zomato, Policybazaar, etc., came into the market, they were first, but after a dip and rise, some of the new-age companies are providing returns to investors. So much so, another peer Swiggy is getting ready to launch its own public offer.

But price discovery can be a long and arduous process for a few. Here, institutional investors play a large role. Roadshows are conducted by companies to gauge the interest in the company, and pricing is determined based on their inputs.

In an exuberant market, the excitement of a 'new company' can generate a lot of interest. A lot of experts predict that the IPO market will remain buzzing in FY25 too, with 19 companies proposing to raise Rs 25,000 crore already securing a SEBI nod.

In addition, 37 more looking to raise about Rs 45,000 crore are awaiting SEBI approval. Also, nine of these companies are new-age tech companies like Swiggy, Ola Electric and more. How many of the rest will choose to be peerless and venture into untested waters is a function of the market and its conditions. 

Katya Naidu is a senior business journalist who writes about equity markets, startups, energy, infrastructure, real estate and healthcare.

Disclaimer: The views expressed here are those of the author and do not necessarily represent the views of NDTV Profit or its editorial team.