Shares of Popular Foundations made a disappointing debut on the stock market on 24 September, falling 5% below the initial public offering (IPO) price. The stock hit the lower circuit of ₹35.15 per share shortly after listing on the BSE SME platform, down from the IPO price of ₹37 per share. For investors looking to invest in stocks, this sharp decline signals a weaker-than-expected market reaction.
Grey market predictions fall short
The weak opening came as a surprise, given the earlier predictions in the grey market. Shares were trading flat in the grey market prior to the listing. The grey market, an unofficial platform where shares are traded before the IPO subscription opens, had forecast a more stable performance, but reality showed otherwise.
This poor performance contrasts with investor expectations, especially considering the increasing popularity of SME IPOs in recent months. Many investors who hoped to invest in stocks through this IPO may be reconsidering their approach.
Subscription levels and investor response
Popular Foundations' IPO raised ₹19.87 crore through a fresh issue of 53.7 lakh shares. Despite the overall enthusiasm for SME IPOs, the response to this particular issue was lukewarm. The public offer was subscribed just over nine times, with retail investors showing the most interest. Retail investors oversubscribed their reserved portion by 15 times, while non-institutional investors showed less enthusiasm, subscribing just 3.5 times their allocated shares. Notably, qualified institutional buyers (QIBs) did not participate in the bidding process.
This uneven demand highlights the mixed investor sentiment towards Popular Foundations, a company that specialises in providing end-to-end engineering and construction solutions for non-residential, non-government projects. Founded in 1998, the company has a strong presence in Chennai and nearby cities, with a portfolio that spans factories, educational institutions, and commercial spaces.
Use of IPO proceeds
The company has outlined several key areas where it plans to use the funds raised from the IPO. These include prepayment or repayment of a portion of its outstanding borrowings, as well as funding its working capital needs. A portion of the proceeds will also be directed towards general corporate purposes.
Despite its industry expertise and long-standing presence, Popular Foundations's weak listing performance raises concerns about its future growth prospects. Following this disappointing debut, Popular Foundations may face an uphill battle to regain investor confidence. However, its focus on reducing debt and strengthening its balance sheet could provide a solid foundation for future growth.
Conclusion
Popular Foundations’ weak debut on the BSE SME platform, hitting the lower circuit and dropping 5% below the IPO price, has left many investors concerned. The stock's performance, coupled with mixed subscription levels, suggests that investor sentiment was less optimistic than anticipated. Despite the company’s established presence in the engineering and construction sector, its share price performance post-listing may deter some from further investment, at least in the short term.
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