Analyzing IPOs

Business: What is the company business ?

Industry Growth: At what rate that industry is growing and how much scope of growing is still left. As in case of Zomato or burger king we can see these companies still needs to expand in Tier 2 and Tier 3 cities. There is opportunity of it growing 3 times at least.

Competition: Who are its competitors. Are competitors strong enough to eat their market share. What is the competitive advantage of this company.

Company growth: What is the rate at which company is growing its sales. (At least greater then 10% every year)

Funding of expansion: Expanding by its internal profit or taking loans. Because V mart is growing by using their earning where as Big Bazar grew by taking loan. We know what happened to both of them.

Idea of expansion: How many outlet or factory they currently own. In future how many more plant or outlet they want to open. Example if company owns 10 outlet and has revenue of 1000 rupees, then we can easily guess that in future if company is planning to open 5 more outlet it should tick revenue of at least 15000. In this way we can track in long term if companies is performing according to what they say or not. We will keep our self invested till company is saying and fulfilling what they say.

Technology impact: How they are adopting to new technology. As they are trying to go online or just trying to put offline only. 

Valuation: (Profit making IPO's): 

Example of company

As we can see company is growing its sales from 12 to 15 %. So we can assume that it continues to grow this pace and next year it achieves target of 12% sales growth. It also maintains 20 % profit margin.

FY22 is profit is calculated.

With 290 rupees profit and 20PE we can calculate market cap. Which is equal to 20*290=580.

580/number of total share = gives you price of each share.

This way we can find the expected target price for next year.

Let us know if you want to know more about loss making companies IPO.