There is always a reason, a logical reasoning behind all, well, almost everything. So one should look at the current spiraling price rise of the newly listed Resurgere Mines with a lot of trepidation, rather than awe. There is no new found fancy or reckoning for the stock, it is just pure market manipulations.
Resurgere Mines & Minerals went public on 11th August, 2008 with an issue of 44.50 lakh equity shares of Rs.10 each at Rs.270 per share. Price band for the issue was between Rs.263 to Rs.272 but it was discovered at Rs.270. QIB portion got subscribed by about 1.34 times with 9 allottees, while HNI category subscribed by about 2.36 times with 38 allottees and retail category was undersubscribed to 0.3491 times with about 4,100 allottees.
Out of total issue size of 44.50 lakh equity shares, three allottees have got the allotment of 23,64,839 shares. These three allottees are :–
1) Elara India Opportunities Fund Ltd. 16,09,529 shares
2) Prime India investment Fund Ltd. 3,77,655 shares
3) Rahn And Bodmer 3,77,655 shares
Total 23,64,839 shares
This constitutes 53.14% of the public issue.
Now let’s have a look at the trading pattern of the stock on its listing day.
On 1st September, 08, first day of listing, 332 lakh shares were traded on BSE, while 336 lakh shares were traded on NSE, totaling to 668 lakh shares. This is over 15 times of the issue size.
The delivery on BSE on first day were of 19.96 lakh shares while on NSE it was at 11.99 lakh shares, totaling 31.95 lakh shares, which amounts to 71.80% of IPO size. So it is obvious that the three allottees stated above have participated in the delivery trades on the first day.
On first day, average rate at which trades were executed on BSE were at Rs.433 per share, while on NSE they were at Rs.447 per share. So it can be presumed that delivery transactions must have also executed at that rate.
One fails to understand that when there were no takers for the issue, even at Rs.272 per share, about a fortnight back, who were those desperate (and unfortunate) investors who bought 31.95 lakh shares at a rate above Rs.272 per share? Share had its high of Rs.563 and a low of Rs.272 on the first day itself. Also, why these three allottees who were so confident to buy more than 50% IPO, have not found it worth holding the stock even for a day? One may argue, that these allottees have booked profit and exited the stock, which is very much acceptable and within the market norms. But, then who were these buyers on first day, buying a stock like Resurgere at or above the issue price?
It is said that all the accommodation allottees were given exit on the first day as they were arranged on the pre-determined terms and new set of players have come in.
In view of delivery transaction having taken place of 31.95 lakh shares on the first day, there is likely to be auction of the short delivery on Friday, the 05-09-08. By then, share price is likely to get jacked up to Rs.750, as per information gathered from the market sources. As there is virtually no floating stock, the momentum play will continue in the stock. It is certain that these prices will not be sustained after 15 – 20 days. In all probability, the share price will fall to the issue price or even below that in the next couple of months, finally recognizing the true worth.
Strangely, many prominent promoters of broking companies and its executives are allottees in the company, having acquired shares at a lower than issue price, in pre-IPO placement. Obviously, all of them have lock-in of one year from the date of allotment, which will expire on 26th August, 2009.
When we compare the company on pure fundamentals, we find Sesa Goa as the comparable peer, which is now ruling at a PE ratio of less than 5, based on estimated FY 09 earnings. If we accept the projections of Resurgere Mines for FY 09, where it is expected to have an EPS of Rs.54, and now ruling at Rs.630, it means that it is now ruling at a PE ratio of over 11 times. A company, which has not revealed quantitative details of its past operations and also no material information, with respect to mining contract, (which is key and material), as given in its RHP, it is difficult to accept this kind of PE multiple getting applied. Also, the company does not own any of its mines and despite this , it has stated “own mining reserves” in its financials of FY 08, which is grossly a wrong statement.
It is known fact, that the scrip is driven by the operators and many of the analysts know the modus operandi. Nick names and codes have been given to these players by the market to identify them.
It has always been held that the primary market is a tool for the investors to make money, which is now being misused by these operators to rob and loot these gullible investors. No doubt, some investors are making money, due to these manipulations, but they are not masses but classes. If this trend continues, it is certain that confidence from the primary market would get wiped off further and probably the experts and agencies, those who are responsible to keep this faith intact, would only be held responsible in shattering it further.
In such manipulative operations, it is the gullible traders (investors) who loose crores of rupee and in the process, are left holding stocks with no exit route. Regulator must look into it and timely actions are desired to prevent irreparable loss being caused to primary market and in turn to secondary market and overall investment climate of the country.
marvelous efforts with excellent analysis!
Excellent analysis and insight.
Do give us more like this!!