Zenith Drugs IPO Lists 39.24% higher, but closes at -5% lower circuit

Strong listing for Zenith Drugs IPO, then lower circuit

Zenith Drugs IPO had a strong listing on the NSE, listing at ₹110 per share; a strong premium of 39.24% to the issue price of ₹79 per share on 27th February 2024. However, after a bumper opening, the stock struggled under the selling pressure and closed the day at the -5% lower circuit on the listing price. Despite the lower circuit on the stock during the day, the stock of Zenith Drugs Ltd still closed at a robust premium of 32.28% over the IPO issue price, although it did close at a discount of -5% to the listing price of ₹110 per share. The closing price of the day was ₹104.50 per share.

The strong listing was in spite of a rather strong show by the Nifty and the Sensex. On the listing day on 27th February 2024, the Nifty and the Sensex ended with reasonably good gains. The Nifty closed the day 76 points higher while the Sensex closed the day 305 points higher. Despite positive cues from the Nifty, the stock of Zenith Drugs IPO still closed at the -5% lower circuit at the close of 27th February 2024. It must be noted here that the Nifty and Sensex have been relatively volatile in the last few days, although that can be attributed to historic highs for the Nifty and Sensex as well as the upcoming general elections in the middle of 2024, which will see a new government being voted to power. That is a lot of political uncertainty for the stock markets to contend with.

Why Nifty and Sensex are volatile in last few days?

One reason for the Nifty volatility is the high VIX levels and the upcoming elections, which has added to the uncertainty quotient in the markets. Even aside of the election uncertainty, there are other factors that are impacting the market volatility. This has largely to do with the slew of data flows in this week. There are the all-important India data points expected this week. The Q3-FY24 GDP number for the third quarter and the second estimate for full year GDP will be out this week. There is also the core sector growth numbers and the monthly update for fiscal deficit that will get updated as of the end of January 2024. Core sector is a barometer of infrastructure growth and the fiscal deficit will be measured against targets. In terms of global data flows, the US Bureau of Economic Analysis (BEA) will announce the second estimate of fourth quarter GDP for the US economy. On the last day of February, the US BEA will also announce the PCE inflation data, a key input for the Fed to formulate its monetary policy.

Mega Subscription levels, and how it impacted listing of Zenith Drugs IPO

Let us now turn to the subscription story of Zenith Drugs IPO. With mega subscription of 139.28X for the retail portion, 106.72X for the QIB portion and 368.77X for the non-retail HNI / NII portion; the overall subscription was extremely huge at 179.18X. The IPO was a book building issue with the IPO price band fixed in the range of ₹75 per share to ₹79 per share. Being a book built issue, it was hardly surprising that the price discovery happened at the upper end of the band at ₹79 per share. The stock listed with gains of 39.24% on the NSE. However, subsequently, due to the stock opening so much higher than the issue price and due to the general bearishness in the markets overall, the stock of Zenith Drugs Ltd went on to close at the lower circuit of -5% on the listing price on 27th February 2024.

This was reflective of pressure on the stock at higher levels, on a day when overall market sentiments were relatively quite strong. The subscription normally impacts the price discovery in book building issues and the listing price. The strong subscription had a positive impact on the ability of the stock  in two ways. Firstly, it led to the stock price getting discovered at the upper end of the band; and that was the case here as the price got discovered at the upper band of ₹79 per share. On the day of listing, the stock managed to get a strong opening of 39.24% over the IPO issue price of ₹79 per share. However, eventually, the stock went on to close the day at the -5% lower circuit on the listing price of ₹110 per share. The stock closed the day at ₹104.50 per share.

Stock closes Day-1 at lower circuit, after a bumper listing

Here is the pre-open price discovery for the Zenith Drugs IPO on the NSE.

Data Source: NSE

The SME IPO of Zenith Drugs Ltd was a book built issue priced at the upper band of ₹79 per share. On 27th February 2024, the stock of Zenith Drugs Ltd listed on the NSE at a price of ₹110 per share, which is a premium of 39.24% over the IPO price. However, amidst a volatile day post listing on 27th February 2024, the stock of Zenith Drugs Ltd closed exactly at the lower circuit price of ₹104.50 per share. The stock had an upper circuit limit of ₹115.50 per share for the day and a lower circuit limit of ₹104.50 per share for the day of listing i.e., 27th February 2024.

In the midst of the volatility in trading during the day, the stock price did manage to go above the listing price, although it did fall short of the upper circuit for the day. Through the better part of the trading day on 27th February 2024 the stock traded under the listing price; in fact, being locked in the lower circuit for most part of the day. The closing price reflects a mixed day of trading, because it closed at the lower circuit after a very strong opening for the day and after staying below the listing price during most of the trading session. However, this lower circuit comes after a very strong listing on a day when the Nifty and the Sensex closed with gains, but in the midst of a lot of market volatility.

Trade to Trade (ST) category SME listing

Being an SME IPO on the NSE, the stock of Zenith Drugs Ltd was subjected to 5% circuit filter either side on listing day and was also placed in the ST (trade to trade) segment, specifically for SME stocks. That means, only delivery trades are permitted on the stock. Like the upper circuit price, even the lower circuit price on listing day is calculated on the listing price and not on the IPO price. The opening price of the day was at a substantial premium of 39.24% over the issue price of ₹79 per share. During the day, the stock was volatile at opening but never really seriously got to stay above the listing price and remained under that price, eventually closing at the lower circuit price. In fact, the stock was locked in lower circuit for most part of the day on 27th February 2024. On the NSE, the stock of Zenith Drugs Ltd has been admitted to trade in the ST category. The ST category is specifically for the SME Emerge segment of the NSE with compulsory trade to trade settlement. On such stocks, netting of positions is not permitted and every trade has to be settled by delivery only.

How prices traversed for Zenith Drugs IPO on listing day

On Day-1 of listing i.e., on 27th February 2024, Zenith Drugs Ltd touched a high of ₹114.50 per share on the NSE and a low of ₹104.50 per share. The high price of the day was above the listing price of ₹110 per share, although it fell short of the upper circuit price. For most part of the day the stock stayed below the listing price. The high price was just short of the upper circuit price of ₹115.50 per share. However,  the stock closed at the lower circuit price of ₹104.50 per share. Between these two extreme prices, the stock was relatively volatile and eventually closed at the lower circuit price of the day. However, it is rather uncommon for a stock to close at the lower circuit after getting such a robust listing in the morning.

In terms of the circuit filter limits, the stock of Zenith Drugs Ltd had an upper circuit filter limit of ₹115.50 and a lower circuit band limit of ₹104.50. The stock closed the day 32.28% above the IPO issue price of ₹79 per share but the stock also closed -5% below the listing price of the day. The stock touched the lower circuit price of the day and spent most part of the day locked at lower circuit. The stock closed under pressure at the lower circuit at the close of the day with sell quantity of 1,600  shares and no buyers in the counter on the NSE. For the SME IPOs, it may be recollected, that 5% is the upper limit and also the lower circuit limit on the listing price on the day of listing. This circuit is not contingent on the issue price in any way.

Robust volumes for Zenith Drugs Ltd on listing day

Let us now turn to the volumes of the stock on the NSE. On Day-1 of listing, the Zenith Drugs Ltd stock traded a total of 21.632 lakh shares on NSE SME segment amounting to trading value (turnover) of ₹2,334.31 lakhs on the first day. The order book during the day showed a lot of volatility with the sell orders consistently exceeding the buy orders at any point of time post the bumper listing. That also led the stock to close at the lower circuit of the day with pending sell orders of 1,600 shares at the end of the trading session, although the price was hardly volatile during the day. It must be noted here that Zenith Drugs Ltd is in the trade to trade (T2T) segment so only delivery trades are possible on the stock. Hence the entire volume for the day purely represents the delivery volumes.

At the close of Day-1 of listing, Zenith Drugs Ltd had a market capitalization of ₹179.21 crore with free-float market cap of ₹53.80 crore. It has a total of 171.49 lakh shares as the issued capital of the company and a face value of ₹10 per share. As stated earlier, since the trading is on the T2T segment, the entire volume of 21.362 lakh shares during the day is accounted by delivery trades only, barring some market trade exceptions in the market. The stock trades on the NSE SME segment under the trading code (ZENITHDRUG) and will be available in the demat account under ISIN code (INE0QWN01013).

IPO size to Market cap contribution ratio

One way to assess the significance of the IPO on the market cap of the segment is the ratio of market overall to the IPO size. Zenith Drugs Ltd had a market cap of ₹179.21 crore and the issue size was ₹40.68 crore. Therefore, the Market cap contribution ratio of the IPO works out to a healthy 4.41 times. Remember, this is not the ratio of the market cap to original book value, but the ratio of the market cap created to the size of the IPO. That shows the significance of the IPO to the overall market cap accretion.