Biggest IPO on the Way: For How Many Units Should I Apply?

Ashim Aryal (With additions from Sharesansar)

Disclaimer: This is an opinion piece. The author takes full credit and responsibility for the views presented in this article. 

Nepal Infrastructure Bank Limited will issue an IPO for 8,00,00,000 unit shares worth Rs 8 Arba to the general public from Magh 2, 2077.

Out of the offered 8,00,00,000 units; 0.20% of the total offered shares, i.e. 1,60,000 units have been set aside for the employees of the company, and 5%, i.e. 40,00,000 units have been set aside for mutual funds. The remaining 7,58,40,000 units are for the general public.

If we analyze the present market, for me personally, IPO’s are the best things to get started with investing. The return on investment is high as compared to other investment options like the secondary market, auctioned shares, etc.

Thus, let’s have a look at the recently issued IPO’s in the market. Considering that the upcoming IPO of Nepal Infrastructure Bank will get the same level of attention from investors, we will also approximate the number of shares that an individual can be allotted.

1) Sanima General Insurance Limited

Out of the offered 30,00,000 units of Sanima General Insurance Limited, 4% of the total offered shares (1,20,000 units) were set aside for the employees of the company and 5% (1,50,000 units) for mutual funds. The remaining 27,30,000 units were for the general public.

The issue had received applications from 8,63,545 valid applicants who had applied for a total of 1,85,29,240 units. The issue was oversubscribed by 6.81 times. Meanwhile, 3,360 applications for 62,280 units were invalidated.

So, we can derive a conclusion that if Nepal Infrastructure Bank receives the same number of applicants (8,63,545 applicants) for an average of 50 units, 4,31,77,250 units of shares will be subscribed. This clearly shows that the remaining 3,26,62,750 units of shares will be unsubscribed. So, it is clear that no applicant will go empty hand.

If the same number of applicants were to apply for the IPO of Nepal Infrastructure Bank, each applicant will get over 80 units.

2) Mountain Energy Nepal Limited

For another example, let us take Mountain Energy Nepal's IPO issue.

Out of the offered 19,68,027 units, 2% of the total offered shares were set aside for the employees of the company, and 5% were set aside for mutual funds. The remaining 18,30,265 units were for the general public.

According to the issue manager Nabil Invest, the IPO received 6,74,416 applications for a total of 1,39,44,410 units. Thus, the issue was oversubscribed by 7.62 times in terms of the volume of units issued. If one looks at the number of applicants, the issue received significant interest from investors, given that only 1,83,026 applicants got 10 units each via lottery.

If the same number of applicants (6,74,416 applicants) apply for the upcoming biggest IPO with an average of 50 units, only 3,37,20,800 units will be subscribed. The remaining 4,21,19,200 unit shares will be unsubscribed.

If the same number of applicants who applied for the IPO of Mountain Energy Nepal were to apply for the IPO of Nepal Infrastructure Bank, each applicant will get over 110 units.

3) Prabhu Life Insurance Limited

The IPO of Prabhu Life Insurance Limited is the second-most recent IPO issue in NEPSE.

Prabhu Life Insurance Limited had issued 60,00,000 units worth Rs 60 crore as Initial Public Offering to the general public from Mangsir 29. Out of the offered 60,00,000 units, 5% was set aside for the employees of the company and another 5% for mutual funds. The remaining 54,00,000 units were for the general public.

According to the issue manager, 10,82,000 applicants applied for a total of 2,92,87,000 units. If the same number of applicants apply for the upcoming biggest IPO with an average of 50 units, only 5,41,00,000 units will be subscribed. The remaining 2,17,40,000 unit shares will be unsubscribed.

If the same number of applicants who applied for the IPO of Prabhu Life Insurance Limited were to apply for the IPO of Nepal Infrastructure Bank, each applicant will get over 70 units.

4) Chandragiri Hills Limited

The IPO of Chandragiri Hills Limited has recently concluded. The issue had opened from Poush 24. The company had issued 15,34,091 units as IPO to the general public at the par value of Rs. 100 per share to raise a capital worth Rs. 15.34 crores. The company issued a total of 15,34,091 units of shares. A total of 61,364 units (4% of total issue) worth Rs. 61.36 lakhs were segregated for the employees of the company and 76,705 unit shares for mutual funds. The remaining 13,96,022 unit shares were for the general public.

According to the issue manager, the issue has received applications from 12,51,938 applicants for a total of 2,44,29,840 units. 

If the same number of applicants who applied for the IPO of Prabhu Life Insurance Limited were to apply for the IPO of Nepal Infrastructure Bank, each applicant will get about 60 units.

But wait a second. Things will be different this time.

1) Scenario 1

Like we already said, the upcoming IPO of NIFRA will be the biggest in NEPSE's history. Everyone is excited about it. Furthermore, the secondary market of NEPSE is breaking one record after another, which has made the stock market a lucrative field for people.

It is a normal incident to hear about IPOs, shares and investing nowadays in barbershops, tea stalls, and friendly conversations. Needless to say, an astounding volume of applications are submitted each day to open new Demat accounts. People are opening the Demat accounts of all of their family members.

While this is a good thing for the Nepalese securities market in the long term, it might have an impact on the upcoming IPO. Anyone can guess that the biggest IPO will receive applications from at least 13.5 lakh applicants. This is why we can't really equate the volume of applicants in previous IPO issues with the upcoming IPO issue.

Thus, if we only consider this scenario, investors might only get 50 - 70 units per individual because of the factors elaborated above.

2) Scenario 2

The IPO of NIFRA is expecting to collect Rs. 8 Arba. Even though the volume of investors is high in previous IPOs, they only had to collect a much lesser monetary amount. 

Even though we are seeing a spike in the number of applicants, it is still a challenge to collect the monetary amount of that scale. 

Thus, although we only compared the number of applicants, it is equally important to note that not all these applicants will/ can apply for 50 units or more. If this happens, those who apply for more units might actually get all that they demanded. 

Conclusion

Why indulge yourself in a futile game of guessing when you can get hard facts already. After the IPO opens on Magh 02, Sharesansar publishes the IPO collection data each day until the end of the IPO issue. We receive the data directly from the issue manager and make it live for our readers in the evening.

Investors can then study the number of applicants, see if the issue is already oversubscribed or not, and then apply for the IPO. By the third day, after looking at the volume of applicants, it gets pretty clear how much to apply for an IPO.

Ashim Aryal
ashimaryal99@gmail.com