New Delhi: Companies which get high grades
for their initial public offers have higher price-to-earnings
(PE) multiples, rating agency Crisil said on Tuesday.
Companies with a higher IPO grade of 4/5 (indicating
above average fundamentals relative to other listed securities
in India) have enjoyed average PE multiples of 25.8x, compared
to companies with a lower IPO grade of 1/5 (indicating poor
fundamentals) at 14.8x, the agency said.
PE multiple indicates fundamentals of a stock and a
company with higher PE would give better returns to investors.
The Crisil Equities' analysis was conducted on 56 graded
listed IPOs, which included companies that have been listed
for more than 6 months as on December 31, 2009.
"Higher IPO graded companies, typically tend to operate
in higher growth industries, have superior management
strengths and follow good corporate governance practices. Such
characteristics tend to command better valuations, as
reflected in higher PE multiples," Crisil Equities Head Chetan
Majithia said.
To assess the relation between an IPO grade and its PE
multiple, companies with similar grades and their average PE
multiple was considered by Crisil for analysis.
While companies with IPO grades of 2/5 were trading at PE
multiples of 17.6x, those with a grade of 3/5 traded around
20.9x multiple, Crisil said.
"The market price of a stock can be influenced by factors
other than fundamentals, such as liquidity and market
sentiments," Majithia added.
PTI
First Published: Tuesday, January 19, 2010, 20:12