The Piramyd stock now trades at the Rs 240 levels, double the price at which shares were issued to the public in the IPO. Consequently, the company’s valuation has jumped from about 27 times estimated earnings for FY07 to about 50 times.
Piramyd Retail’s initial public offering in November last year hadn’t exactly set the markets on fire. On the contrary, the company had to price its issue at Rs 120, the lower end of the price band it had set. On the day of listing - December 6, 2005, the Piramyd stock closed at Rs 131.75 on the National Stock Exchange, 9.8% higher than the issue price. It traded at an average price of Rs 129.1 the rest of the month, indicating that demand for the stock continued to be unexciting.
But things have changed. The Piramyd stock now trades at the Rs 240 levels, double the price at which shares were issued to the public in the IPO. Consequently, the company’s valuation has jumped from about 27 times estimated earnings for FY07 to about 50 times. Interestingly, this sharp improvement in the stock’s fortunes came about in just 12 trading sessions. True, FII buying could have propped up the price, keeping in mind that they weren’t allowed to invest in the IPO but are now allowed to own up to 24% of the company’s equity. However, this alone couldn’t have resulted in a 100% jump in the company’s stock price. And there isn’t any major announcement from the company that seems to have triggered this sudden improvement in valuations.
The company did announce the opening of two Megastores in Delhi and Pune (taking the total number of Megastores to 7), and three Trumart stores (taking its total in this format to 11) this month. But this is exactly in line with what the company had outlined at the time of the IPO. Analysts point out that the markets would be pleased at the fact that the company is delivering on the promises it had made at the time of the IPO. While that could be true, the enthusiasm seems overdone.
The stock now trades at 50 times estimated FY07 earnings, and enjoys the highest valuation in the retail space. While Pantaloon trades at 34 times consensus earnings estimates for FY07, Shoppers’ Stop gets a higher valuation of 40 times FY07 earnings thanks to better growth prospects. Having turned profitable only this year, Piramyd’s profit is currently at a low base, and analysts expect earnings to grow at a fast pace. But one must keep in mind that since much of the company’s growth would come from new store launches, which aren’t profitable in the initial years of operations, banking on high earnings growth in the next couple of years could be risky.
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