IPO performance Analysis of 30 Banks of Bangladesh PDF

Preview

Summary

A financial system is a system that allows the exchange of funds between lenders, investors and borrowers. It promotes savings and investment in the economy and enlarges the resources flowing into the financial assets which are more productive than the physical assets. A financial market is a market...

Description

1.Introduction A financial system is a system that allows the exchange of funds between lenders, investors and borrowers. It promotes savings and investment in the economy and enlarges the resources flowing into the financial assets which are more productive than the physical assets. A financial market is a market in which people trade financial securities, commodities and other fungible items of value at low transaction costs and at prices that reflective supply and demand. Financial market has significant role to play in this context because it is a part of the financial system. It provides the financial resources needed for the long term and sustainable development of different sectors of the economy. Investors have access to a large number of financial markets and exchanges representing a vast array of financial products. Some of these markets have always been open to private investors; others remind the exclusive domain of major international banks and financial professional until the very end of the twentieth century. Financial market is divided into money market and capital market. Primary market facilitates securities to the investors and assist the corporate sector in arranging funds in the form of public issue, offer for sale, private placement and right issue. Public issue can be further classified into initial public offer (IPOs) and further public offer (FPO). An initial public offering (IPO) is a company’s first offering of equity to the public. IPO is a major source of capital for firms. IPO’s are important milestone in any company’s growth as it progresses from being a start- up/private limited company to public limited. Successful IPO can generate tremendous amount of wealth for company promoters as well as pre-IPO investors. Historically a majority of the IPO’s were under-priced with an aim to issue abnormal profits on the listing thus attracting more investors to subscribe to their stocks. Empirical studies have established the above in efficient markets. Numerous research papers have studied the anomaly of underpricing and abnormal returns yet they are insufficient to demystify the above. Hence this study will analyse the short term and the long term performance of the Initial Public Offerings and help the investors take an informed decision while investing for the same. This report is all about IPO performance analysis of 5 companies, where the analysis has been made according to long term and short term.

1.1Background of the study: C&A Textiles Limited: C & A Textiles Limited (CATL) was incorporated in Bangladesh as a Private Limited Company with the issuance of Certificate of incorporation bearing no. C-3912 of 2001 dated on February19, 2001 by the Registrar of Joint Stock Companies & Firms. The Company Converted into public Limited Company and split of Share value from Tk. 100 to Tk. 10 dated on December 22, 2013.C & A Textiles Limited is a 100% Export oriented knit composite Textiles industries to carry out Business of Knitting, Dyeing, Printing and Manufacturing of various types of RMG such as T- Shirt, Polo Shirt, Tang Tops, Shorts, Sweet Shirt, Boxer, Skirts, Legging, Fleece Jacket Etc, and Export to the USA, Canada, Brasil, UK, Italy and Germany. Toshrifa Industries Limited: Tosrifa Industries Limited engages in knitting, designing, manufacturing, marketing, and exporting readymade garments worldwide. The company’s principal products include ladies’ and gents’ knitwear, such as polo shirts, T-shirts, tank tops, etc. It also provides readymade garments for kids/children. The company was founded in 2002 and is headquartered in Gazipur, Bangladesh. Zaheen Spinning Limited: Zaheen Spinning Ltd was a privately owned company by Mr. A. M. Badruzzaman Khashroo and Sons. It was established in 2007 at Jhawgara, Araihazar, Narayangonj industrial city in Narayangonj, Bangladesh.The company is committed to produce fine quality cotton yarn from different counts, 100%, cotton yarn normal or high bulk. The yarn is used in different end markets 1

such as knitwear, fabrics, socks and weaving. We currently have an estimated annual production capacity of 720 Tons. The owner of the company had spent a long time in this field as he was since 25 years. aheen is a multi-unit, multi-interest business group with a wide range of industrial activity, an organisation that has founded its evolution on value-based commercial practice. Simtex Industries Limited: Simtex Industries Limited engages in the dyeing and conning/winding of sewing thread in Bangladesh and internationally. The company offers poly poly core-spun, spun polyester, cotton, filament, and embroidery threads, as well as textured polyester, cotton raw white, and cotton yarn dyeing products. It also provides plastic bobbins. The company offers its products for use in readymade garments products, as well as the knitting industry. Simtex Industries Limited was incorporated in 2007 and is based in Dhaka, Bangladesh. KDS Accessories Limited: KDS Accessories Limited manufactures and sells apparel trims, and packaging products and services worldwide. The company offers corrugated boxes, sewing threads, hangers, poly bags, buttons, gum tapes, woven and printed fabric labels, elastics and narrow fabrics, heat transfer labels, and offset printing solutions. The company was formerly known as KDS Packaging Industries ltd and changed its name to KDS Accessories Limited in April 2010. KDS Accessories Limited was incorporated in 1991 and is headquartered in Chittagong, Bangladesh.

1.2 Objective of the study: In the fulfillment of any work there have to have a goal/objective, this is expected to attain at the end of any work. This study also has some objectives for the competition of this report. Objectives are given below:     

To know the how-to analysis IPO performance To know about the different methods of IPO performance analysis. To know how-to apply those methods. To analyze whether the returns are more better in short term or in long term for better conclusion To have a brief idea of the share market performance.

1.3 Scope of the study: The report is based on the five companies and all of the are textile industries. They are1 2 3 4 5

C&A Textiles Limited Toshrifa Industries Limited Zaheen Spinning Limited Simtex Industries Limited KDS Accessories Limited

1.4 Limitations of the Study Limitations that may take place during the preparation of this report are given below:   

Stock exchange information generally changes time to time, so the final conclusion given on the report may not be true. Time constrain is another main problem of this report. As it is mandatory to finish the report in given time. So it may not be possible to add more informative data within the due time. As there are different methods exist for analyzing IPO performance so the process we have selected for analysis may vary from the other methods and the result can be different. 2

2.Methodology Short term performance analysis: The total return for stock “i” at the end of the first trading day is calculated as: 

Ri=(P1-Po)/P0……….(1)

Where P1 is the closing price of the stock “i” at the first trading day and P 0 is the offering price and R i is the total first day return of the stock. The analysis will help us to know whether the share price is increasing or decreasing. If Ri becomes positive then it will indicate that the price is increasing and if becomes negative then it will indicate that the price is decreasing. The short-term analysis will be done for the 1st month and 3rd month performance of the IPO’s. Long term Performance analysis: The return on the market index: 

Rm1=(Pm1-Pm0)/Pm0……….(2)

Where Pm1 is the closing market index value at the first trading day and P m0 is the closing market index value on the offering day of the appropriate stock, while Rm1 is the first day’s comparable market return. Using these two returns, the market adjusted abnormal return will be calculated.  

MAAR= (Ri- Rm1)*100……….(3) Average MAAR=∑MAARi……….(4)

The long-term analysis will be done for 1 st year and 2nd year performance of the IPO. This analysis will help us to know how much stock return is deviated from the market return. Data and Sample: Data has been collected from Dhaka Stock Exchange official website. The data pertains to sample of 5 companies whose IPOs got listed on the DSE and in formations have consistently been available. All the companies issued their IPO in 2015. So the analysis has been made considering 2015 as the base year.

3

3.Data Analysis Here are the company names and their listing date:

Company Name

Listing day

First day offer price

C&A Textiles Limited

21January 2015

10

Toshrifa Industries Limited

17 June 2015

26

Zaheen Spinning Limited

25 March 2015

10

Simtex Industries Limited

23 November 2015

20

KDS Accessories Limited

15 October 2015

20

Closing price of IPO: Company name

Offer price

CNATEX

10

month 3rd month 1st year 2nd year Same Day 1st Closing closing price closing price closing price closing price Price 22 19.1 19.4 12.2 12.3

TOSRIFA

26

35.7

31.6

23.8

23.8

32.5

ZAHEENSPI N

10

24.3

19.1

22.5

23.2

26

SIMTEX

20

26.7

21.6

20.6

21.6

28.9

KDSALTD

20

85.4

72.3

82.4

72.8

69.6

4

Closing Price of IPO 90 80 70 60 50 40 30 20 10 0 CNATEX

TOSRIFA

ZAHEENSPIN

SIMTEX

KDSALTD

Interpretation: Here we can see the closing price flow of each securities. Offer price differs from one company to another. Initially closing price grew a little but gradually it declined in a significance number. By looking carefully, we can see that among all the securities TOSRIFA’s performance is better than others. Because its price was in a stable position for a time period and then in a increasing phase.

3.1Short term performance analysis: Performance of Same day: Company Name

Offer Price (P0)

Same day closing price (P1)

Ri=(P1-Po)/P0

CNATEX

10

22

21

TOSRIFA

26

35.7

34.7

ZAHEENSPIN

10

24.3

23.3

SIMTEX

20

26.7

25.7

KDSALTD

20

85.4

84.4

5

Chart Title CNATEX

TOSRIFA

ZAHEENSPIN

SIMTEX

KDSALTD

85.4

26.7 20 20 10 26

24.3 35.7 22

10 Offer Price (P0)

Same day closing price (P1)

Interpretation: This figure shows the price of each company after the first trading day of IPO. Here Offer Price indicates the issuing price of the stock and Same Day Closing Price indicates closing price on offering day. Performance of 1st month: Company Name

Same day closing price(P0)

1st month closing price (P1)

Ri=(P1-Po)/P0

CNATEX

22

19.1

-0.131818182

TOSRIFA

35.7

31.6

-0.114845938

ZAHEENSPIN

24.3

19.1

-0.21399177

SIMTEX

26.7

21.6

-0.191011236

KDSALTD

85.4

72.3

-0.153395785

Note: Yellow mark defines which has the highest Ri among these.

6

Performance after 1st month(Return) 0

-0.05

-0.1

-0.15

-0.2

-0.25 CNATEX

TOSRIFA

ZAHEENSPIN

SIMTEX

KDSALTD

Interpretation: Though all the securities price in a negative phase, among them TOSRIFA did well.

Performance of 3rd month: Company Name

Same day closing price(P0)

3rd month closing price (P1)

Ri=(P1-Po)/P0

CNATEX

22

19.4

-0.118181818

TOSRIFA

35.7

23.8

-0.333333333

ZAHEENSPIN

24.3

22.5

-0.074074074

SIMTEX

26.7

20.6

-0.228464419

KDSALTD

85.4

82.4

-0.035128806

Note: Yellow mark defines which has the highest Ri among these.

7

Performance after 3rd Month( Return) 0 -0.05 -0.1 -0.15 -0.2 -0.25 -0.3 -0.35 CNATEX

TOSRIFA

ZAHEENSPIN

SIMTEX

KDSALTD

Interpretation: Here we can see that KDSALTD did well after 3rd month. It has the best return among all.

3.2Long term Performance Analysis: For 1st year performance: 1st year closing market index (Pm1) 4,658.94

Rm1=(Pm1Pm0)/Pm0

MAAR=RiRm1

-0.4454545

Same day market Index (Pm0) 4,783.21

-0.0259800

-0.4194745

23.8

-0.3333333

4,527.42

4,387.78

-0.0308424

-0.3024909

24.3

23.2

-0.0452674

4,509.30

4,765.36

0.05678324

-0.1020507

SIMTEX

26.7

21.6

-0.1910112

4,694.95

4,355.94

-0.0722076

-0.1188036

KDSALTD

85.4

72.8

-0.1475409

4,676.63

4,709.63

0.00705590

-0.1545969

Company Name

Same day closing price(P0)

1st year closing price (P1)

Ri=(P1Po)/P0

CNATEX

22

12.2

TOSRIFA

35.7

ZAHEENSPIN

Total MAAR

-1.0974165

Average MAAR

-0.2194833 8

Note: Yellow mark defines which has the highest Ri and MAAR among these.

Performance after 1st Year(MAAR) 0 -0.05 -0.1 -0.15 -0.2 -0.25 -0.3 -0.35 -0.4 -0.45 CNATEX

TOSRIFA

ZAHEENSPIN

SIMTEX

KDSALTD

Interpretation: We can see the performance of securities in a long run, by comparing with MAAR. Here ZAHEENSPIN did well in MAAR.

For 2nd year performance: MAAR=RiRm1

2nd year Same closing day market market index Index (Pm1) (Pm0) 4,783.21 5,602.8 5

Rm1=(Pm1Pm0)/Pm0

4,527.42 5,461.6 3

0.206346201 -0.2959821

Ri=(P1-Po)/P0

22

2nd year closing price (P1) 12.3

35.7

32.5

-0.08963585

ZAHEENSPIN 24.3

26

0.069958848 4,509.30 5,697.93

0.263594968 -0.1936361

SIMTEX

26.7

28.9

0.082397004 4,694.95 6,322.5 1

0.346662725 -0.2642657

KDSALTD

85.4

69.6

-0.1850117

Company Name

Same day closing price(P0)

CNATEX

TOSRIFA

-0.44090909

4,676.63 6,031.74 9

0.171356354 -0.6122654

0.289762579 -0.4747743

Total MAAR

-1.8409236

Average MAAR

-0.3681847

Note: Yellow mark defines which has the highest Ri and MAAR among these.

Performance after 2nd Year(MAAR) 0 -0.1 -0.2 -0.3 -0.4 -0.5 -0.6 -0.7 CNATEX

TOSRIFA

ZAHEENSPIN

SIMTEX

KDSALTD

Interpretation: After 2nd year ZAHEENSPIN also did well, by consisting performance. They also did well in the 1st year MAAR performance. But unfortunately, we have found out in the long term analysis that this companies Average MAAR is all negative in 1 st year and 2nd Year analysis which that market expected return is higher than actual return. So, we can conclude that investors are disappointed with the IPO performances of this companies.

10

4.Findings In this chapter of the report, we have presented key finding for each company separately. Here are these1.CNATEX- C&A Textiles Limited after issuing IPO in 2015, it did well as the same day price almost doubled up to from Tk. 10 to 22. But after a month its price declined to 19.1 and after 2 year the price deduced to 12.3. Though the shares price has declined but the current price is still above the face value. We can see short term Holding period return and longtime holding period return has a negative return as a result long term MAAR shows negative value. That means CNATEX gives less return than the expected market return. 2.TOSRIFA- Toshrifa Industries Limited issued its IPO IN 2015 with face value of TK. 26 and the first day it did well as price goes up to Tk. 32. After a year though the price declined and came down to tk.23.8 and now it has an upward trend as the price again gone up to tk.32.5. But its long-term MAAR is negative and it’s not giving enough return to investor according to market. 3.ZAHEENSPIN- Zaheen Spinning Limited issued its IPO in 2015 and the closing price of the offering date was 24.3 and the price after declined to 19.1. The short term and long run performance HPR has declined. The price of the stock also doesnt give positive return in MAAR as well. 4.SIMTEX- Simtex Industries Limited’s stock price was 26.7 in the offering day. But after 1 month the price declined 21.6 and as a result its short run HPR is negative. But after two-year price increased as a result we can see a positive HPR in long run. But it doesn’t mean its successful because the two-year return is less than the market return. So, in the long run this IPO offering is also not successful. 5.KDSALTD- KDS Accessories Limited, has issued its stock in face value of tk.20 and it did well as the first day price jumped up to tk.85. As the most stock in DSE it also followed a declining trend as short run HPR and long run HPR is in negative. The negative return in MAAR also suggest that the stock is not giving enough return to investor according to the market. In short, we can say that, the company we have chosen after issuing their stock in 2015 cannot give enough return to investors according to market. So, we can say that these 5 companies IPO performance was bad and their IPO issuing was not successful.

11

5.Possible reason for the decline of the IPO’s The problems surrounding the share market is one of the main reasons that the share price is falling and the IPO’s are failing in the long run. The problems are:

Lack of knowledge of the investors

Not giving the Failure of the dividend Market regularly

1. Lack of knowledge of the investors: In Bangladesh people tends to buy new stock from IPO without judging the financial condition of the company. As a result, the price almost doubles in the closing day of IPO but an overpriced stock is bound to fall. In our research we used DSEX30 to analyze the market return, but most investor doesn’t even know what is DSEX30. 2. Failure of the Market: Where the investors lack the financial knowledge of investing in securities, the market like DSE and CSE need to provide enough informat...