TATA MOTORS DVR LTD: A BEST DIVIDEND YIELD STOCK , A MUST BUY !!!

Scrip Code: 570001 / TATAMTRDVR

CMP:  Rs. 135.10; Buy at Rs.125-130 levels.
Short term Target: Rs. 151, 6 month Target – Rs. 177; STOP LOSS – Rs. 120.00; Market Cap: Rs. 6,510.91 Cr; 52 Week High/Low: Rs. 189.90 / Rs. 79.40

Total Shares: 48,19,33,115 shares(17.90% of Sh Capital); Promoters : 1,86,00,448 shares –3.86 %; Total Public holding : 46,33,32,667 shares – 96.14 %; Book Value: Rs. 62.74*; Face Value: Rs. 2.00; EPS: Rs. 3.89*; Div: 205 %* ; P/E: 57.71* times; Ind. P/E: 38.45*; EV/EBITDA: 18.27*.

Total Debt: 2,845.87 Cr; Enterprise Value: Rs. 9,356.77 Cr.

*Being DVR a class of equity capital, Tata Motors financials are used.

TATA MOTORS LIMITED: Tata Motors was founded in 1945 and was formerly known as Tata Engineering and Locomotive Company Limited (TELCO) and changed its name to Tata Motors Limited in 2003. The company is leading manufacturer of commercial & passenger vehicles in India and is among the top 3 passenger car manufacturers in India and the world's fourth largest truck manufacturer & world's Second largest bus manufacturer. Through its subsidiaries, the company is engaged in engineering and automotive solutions, construction equipment manufacturing, automotive vehicle components manufacturing and supply chain activities, machine tools & factory automation solutions. The company's Automotive operations include all activities relating to development, design; manufacture, assembly and sale of vehicles including all financing thereof, as well as sale of related parts and accessories. Tata Motors has operations in UK, South Korea, Thailand & Spain. The company has many subsidiaries but the most prominent among these is Jaguar-Land Rover (JLR) (a British car manufacturing company) which it acquired in 2008 at $230 Cr and turned it from a loss making company to a profit making company. JLR contributes 54 % to the company’s revenues. The company’s product portfolio ranges from the ultra low cost car Nano to the luxurious cars from JLR, from its ground breaking invention of the light commercial vehicle (LCV) the Ace to the international Prima Truck range. TATA MOTORS is compared to Mazda Motor Corporation, Suzuki Motor Corporation and Mitsubishi Corporation.

Investment Rationale:

Tata Motors is India's largest automobile company, last quarter JLR reported all-time high monthly volumes with both Land Rover and Jaguar rising 54 % and 9 %, respectively. This was been due to geographical demand fuelled by emerging markets like China, Brazil along with the developed markets of the US. In this fourth quarter, Tata Motors posted 16.7 % YoY growth in revenue in the automotive segment, whereas JLR reported a top-line growth of 65.7 % YoY. This led to an overall 44.3 % YoY growth in the company’s consolidated top-line to Rs. 50,900 Cr, EBITDA margin at JLR were at 14.6 %, the consolidated EBITDA margin improved by 30 basis points YoY to 14.1 %. EBITDA grew at Rs. 7,170 Cr. TATA MOTOR was accounted for a tax credit of Rs. 1,820 Cr on account of credit for carry forward of losses from JLR account. Profit After Tax grew by 86.1 % YoY to Rs. 4590 Cr. On Standalone basis, Tata Motors posted 14.4 % YoY growth in its top-line at Rs. 16,390 Cr. Its overall volumes grew by 18.4 % YoY, whereas average realization/vehicle declined by 3.3 % YoY on account inferior product mix skewed towards passenger cars. EBITDA margins on standalone basis improved by 0.60 % YoY to 9.6 % on account of tight control over other expenditure. As a result, EBITDA grew to Rs. 1560 Cr YoY. Profit After Tax on standalone basis grew by 22.8 % YoY at Rs. 780 Cr. The higher than expected standalone profit partially compensated for the disappointment at JLR. JLR reported 51.5 % YoY growth in revenue at ₤414.4 Cr, mainly led by a 48.2 % YoY improvement in volumes. Average realisation/vehicle declined by 2.3 % QoQ on account of inferior product mix skewed towards ‘Evoque’. Other expenses increased by ₤9 Cr on account of investment in new capacities. As an result, EBITDA margins declined by 2.40 % QoQ at 14.6 %. JLR PAT stood at ₤42.2 Cr as against ₤44 Cr in Q3FY12. This, in experts view, a big disappointment given that the volumes for the quarter were up by 11 % QoQ and currency impact was minimal. Management expects JLR volumes to be driven by launch of new Evoque in new markets, demand for newly launch Jaguar’s Model Year (MY) 2012 XF and ramp up operations in China. In Q2 FY12, Evoque was only launch in UK, Europe and US. Evoque has received buoyant response and has an order book of around 20,000 units after catering 8,000 units in Q2 FY12. It is in midst of launching Evoque in China and other developing markets, thus resulting in incremental Evoque volumes in H2 FY12. The company has started to ramp up the distribution network in China to 100 dealers by FY12E and is in advance talks with local partner for production in China. The company has largely resolved issues related to engine constraints with Ford. JLR is setting up a new engine manufacturing facility in UK, which entails an investment of £35.5 Cr. Net Automotive debt to equity stands at 0.3:1. JLR is likely to come up with two new launches i.e. Jaguar XF station wagon in Q3FY13E and new Range Rover platform in Q4FY13E. The company increased its guidance for a capex and R&D spends at JLR to ₤200 Cr as against the earlier guidance of ₤150 Cr. JLR completed an unsecured Revolving Facility totaling ₤71 Cr for 3-5 years thereby strengthening its liquidity position. Management sounded cautiously optimistic regarding volume growth at JLR in Europe and UK.

Outlook and Valuation:

The long term investors can buy the TATAMTRDVR in view of attractive valuation. The long term holders of ordinary shares of Tata Motor can switch to TATAMTRDVR. The Tata Motors DVR shares carry 1/10th of voting rights and shareholders are entitled to a 5 % higher dividend than ordinary shares in lieu of surrendering voting rights. Tata Motors DVR trades at a discount of 45.2 %. The average discount for the DVR to Tata Motors ordinary share was 36.7 % since inception. The average discount for the DVR share over the last two years has been 40.5 %. At the Current Market Price of Rs. 135.10, the DVR is trading at a 40 % discount to Tata Motors’ ordinary share which is at Rs. 224.55. At the current levels, the probability of the discount narrowing is higher. On Some Of The Parts basis the value of standalone business comes at 9x FY13 adjusted EPS of Rs. 5 to arrive at Rs. 45 and for JLR it comes at 5x EV/EBITDA to arrive at Rs. 183 and the valued of the investment book of the company comes at 0.2x BV for unquoted investments and market value of quoted investments to reach Rs. 9/share and arrived at our target price of Rs. 275. One can BUY TATA MOTOR DVR at all lower levels for better returns. It has outperformed the broader market by 6 % on an annual basis. Globally DVRs trends to trade between 10 % - 15 % discounts to its Equity shares, TTM DVR currently trades at 40 % discount to its Equity shares. One should buy TTM DVR at 40 % - 45 % discount to its EQ SH & Sell when DVR arrives at 10 % - 15 % discount to its EQ SH. TTM DVR can be a good ‘BUY’ with a target price of Rs.151 for the short term. Expect discount to the Equity shares reduce to at least 30 % over next one year given the attractive valuations and increasing free float. For the shorter term it can be a good BUY, with a price target of Rs. 151.

SOTP valuation (FY2013E)

BUSINESS SUBSIDIARY	Value per Share(Rs.)
Core Business (9x FY13E Stand.EPS)	45
JLR (5.0x FY13E EV/EBITDA)	183.00
Tata Daewoo	2.00
Tata Motor Finance	3.00
Tata Technologies	4.00
TML Drivelines	4.00
Value of Other Subsidiaries	14.00
Value Post Discount (20 % Holding discount)	11.00
Value of Investments (0.2 x BV of Investments)	9.00
TOTAL VALUE PER SHARE	275.00

KEY FINANCIALS	FY11	FY12E	FY13E	FY14E
SALES (Rs. Crs)	1,22,127.90	1,65,654.50	1,89,786.00	2,07,532.00
NET PROFIT (Rs. Crs)	9,042.50	12,522.40	13,811.70	14,699.00
EPS (Rs.)	28.40	37.50	41.10	44.10
PE (x)	9.70	7.30	6.70	6.30
P/BV (x)	4.60	2.80	2.80	2.70
EV/EBITDA (x)	6.20	4.30	4.20	3.70
ROE (%)	66.10	47.90	41.80	43.80
ROCE (%)	22.10	23.50	21.40	22.50

I would buy TATA MOTOR LTD DVR with a price target of Rs. 151 for Medium to Long term and Rs. 177 for the Short term players. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 120.00 on every purchase.
TO KNOW MORE ON DVR's CLICK HERE

READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

TATA MOTOR DVR : Buy for Dividend yields.

Scrip Code: 570001 / TATAMTRDVR

CMP:  Rs. 696.20; Buy at Rs.670 – Rs.685
Price Target: Short term Rs.725;Long term Rs. 920.
Market Cap: Rs. 6,707.30 Cr.
52 Week High/Low: Rs.940 / Rs. 407.35

Total Shares: 9,63,41,706  shares(15.2% of Sh Capital); Promoters : 1,84,01,430 shares – 19.10 %; Total Public holding : 7,79,40,276 shares – 80.89 %;

Book Value: Rs. 237.37*; Face Value: Rs. 10.00; EPS: Rs.28.99*; Div:150* %.

P/E: 23.80* times; Ind P/E: 32.39*; EV/EBITDA: 18.68*
Total Debt: Rs. 3,163.18* Cr; Enterprise Value: Rs. 1857.52* Cr

*Being DVR a class of equity capital, Tata motors financials are used.

Tata Motors, founded in 1945, was formerly known as Tata Engineering And Locomotive Company Limited changed its name to Tata Motors Limited in 2003. The company is leading manufacturer of commercial & passenger vehicles in India is among the top 3 passenger car manufacturers in India, the world's 4^th largest truck manufacturer, and world's 2^nd largest bus manufacturer. Tata Motors has operations in UK, South Korea, Thailand & Spain. The company has many subsidiaries but the most prominent among these is Jaguar-Land Rover (JLR) (a British car manufacturing company) which it acquired in 2008 at $230 Cr and turned it from a loss making company to a profit making company. JLR contributes 54% to the company’s revenues. The company’s product portfolio ranges from the ultra low cost car Nano to the luxurious cars from JLR, from its ground breaking invention of the light commercial vehicle (LCV) the Ace to the international Prima Truck range.

Experienced and Efficient Management: Tata Motors is a part of the Tata group which is headed by Mr. Ratan Tata, chairman of Tata Motors Ltd. Also the management includes Carl Peter Foster who has a vast experience. He headed the BMW Group for 20 years.

Strong Consolidated Growth: Tata motors had acquired Jaguar and Land Rover from Ford Motor Co. During acquisition the unit was a loss making one. But the management at Tata motors was capable enough to achieve a turn around and not just TTM stopped losses but converted it to a profitable venture. Today around 54% of Tata Motors Revenues comes from JLR.

Good Product Mix: Tata motors had begun as a commercial vehicle manufacturer. A decade ago, Tata Motors had begun to manufacturer passenger vehicles. Today Tata Motors is one of the leading automobile makers in the world. It is India’s largest Automobile manufacturer. Its passenger cars range from the worlds cheapest car, the Nano, to its newest cross over the Aria to the luxurious cars from JLR. The company has a vast portfolio of commercial vehicles ranging from its super successful LCV, the Ace, to the its sturdy tractor trailers, haulage vehicles, buses, hybrid buses, etc to the Prima trucks built for sale in international markets.

My view on Valuations: The performance of the company increased considerably during the Q2FY11 and Q3FY11 and the outlook for Tata Motors continues to be positive, given the robust growth in the economy, increase in sales and profitability of JLR, improvement in industrial and mining sector, completion of ramp-up at its Sanand plant for Nano. The only concern is the supply constraint it faces from Ford for engines and from other suppliers for raw material. At the CMP of Rs. 696.20, Tata Motors DVR is trading at 5x its FY11E EPS of Rs.138.4 and at 4.37x its FY12E EPS of Rs.159.2.

Globally DVRS trade between 10% - 15% discount to its Equity shares, TTM DVR currently trades at 44 % discount to its Equity shares. One should buy TTM DVR at 40% - 45% discount to its EQ SH & Sell when DVR is 10% - 15% discount to its EQ SH. TTM DVR can be a good “BUY” with a target price of Rs.900, with an upside of 30% in the long term.

Expect discount to the Equity Shares reduce (to at least 30%) over the next one year given the attractive valuations and increasing free float. For the shorter term it can be a good BUY, with a price target of Rs.725.00

KEY FINANCIALS	2010	2011E	2012E
SALES (Rs. crs)	92,519.3	1,15,576.8	1,30,024
NET PROFIT (Rs. crs)	1,526	8,680.4	9,986.6
EPS (Rs.)	44.1	138.4	159.2
PE (x)	28.9	5.0	4.4
P/BV (x)	9.1	2.3	1.6
EV/EBITDA	10.1	3.9	3.5

I maintain my BUY status on TATA MOTOR DVR with the price target of Rs. 725 in short term. For long term my target is of Rs.920. As I always say do respect the market and keep a strict stop loss of 8 % on your every purchase.
TO KNOW MORE ON DVR's CLICK HERE

Jain Irrigation Systems Ltd : Best AGRI Sector BUY.BUDGET STOCK

Scrip Code: 500219 / JISLJALEQS

CMP:  Rs. 207.75; Buy at Rs. 200 - 206 levels.
Short term Target: Rs. 230.00
Best buy : At Rs. 180 - Rs. 195 , LT - Rs. 350. Market Cap: Rs. 7,921.3 cr.
52 Week High/Low: Rs. 258.5 / Rs. 157

Total Shares: 38,11,86,460 shares; Promoters : 11,72,43,245 shs – 30.76 %; Total Public holding : 26,15,17,545 shs – 68.61 %;

Book Value: Rs. 35.18; Face Value: Rs. 2.00; EPS: Rs. 7.95; Div: 45 %.

P/E: 26.14 times; Ind P/E: 29.62; EV/EBITDA: 14.79
Total Debt: Rs. 8,942.25 cr; Enterprise Value: Rs. 48,656.54 cr

Jain Irrigation Ltd has multi product industrial profile & manufacturers Drip and Sprinkler Irrigation Systems and Components; PVC, Polyethylene (HDPE, MDPE) & Polypropylene Piping Systems; Plastic Sheets (PVC & PC sheets); Dehydrated Onions and Vegetables; Processed Fruits; Tissue Culture, Hybrid & Grafted Plants; Greenhouses, Poly and Shade Houses; Bio-fertilizers; Solar Water Heating Systems and Solar Photovoltaic Appliances (Solar lighting systems) and Bio- energy sources. Company renders consultancy for complete or partial project planning and implementation e.g. Watershed or Wasteland and / or Crop Selection and Rotation.

About Company - It is the market leader in micro irrigation systems (MIS) in India with over 50 % market share. Having been present in this segment for more than 15 years, there is very strong association of the company with MIS in rural India. Its dealer and sales network is also significantly larger than any of its competitors. As a result, Jain Irrigation is expected to retain its market leadership in the future. MIS alone contributes to more than 50% of its revenues and 70% of EBITDA. Due to its large subsidy business, management of working capital cycle has been a key concern for Jain Irrigation and is a risk to its growth. However, the company has now started factoring its receivables, which should help keep working capital cycle in check. JISL is the biggest player and controls over 1/3rd of the market in drip irrigation, second is Netafim from Israel, Finolex Plasson, Premier Irrigation Adritec.

Future scope of business -  So far only about 4.5 mn hectares (ha) has been brought under MIS compared to government target of 18 mn ha by FY12 and addressable area of 70 mn ha. The government subsidies a minimum of 50% of cost of installation and budget allocation to MIS has been in increasing trends. In FY11, central budget allocation was more than doubled to Rs.1000 cr and recently it was accorded “National Mission” status, which assures funding under the government’s 5-year plan. Government funding for MIS is only likely to go up - MIS is a relatively low hanging fruit for the government in its effort to improve farmland productivity. The MIS market in India is at Rs. 2700 - Rs. 3000 cr, 3/4th of which is for drip irrigation which helps to save water & fertilizer. Agriculture consumes 80 % of water in the country & it makes sense to use drip & sprinkler irrigation systems. In February 9th M&M entered into micro irrigation sector by acquiring 38 % stake in 30 year old Nashik based company EPC for around Rs. 43 crore, M&M will give an open offer of additional 20 % stake in EPC on April 6th. 

Valuations and outlook

JISL has plans to raise Rs. 700 cr through QIP to repay its debt, to provide capital to its new NBFC and to support its future growth. Company believes that fund raising would happen in the next 3-4 months, depending upon the financial market conditions. I have not considered any equity dilution in my estimates. Company declared 1 bonus DVR SHARES (JISLDVREQ DVR shares ) on every 20  Equity Shares held. DVR with 10 % voting rights (click here for DVRs). I therefore recommend Buy and accumulate Jain Irrigation at every dip. My views are positive on the business of JISL and their future prospects on the back of untapped potential of MIS, agricultural business model and strong domestic presence. At present with the drip irrigation market is growing 40 % annually, stock is trading at 22.3x at FY12E EPS as against its historical one - year forward trading band of 10 x 32x. I recommend BUY on the stock with the target of Rs. 350.00

KEY FINANCIALS	2010	2011E	2012E	2013E
SALES (Rs. Cr's)	3,439.7	4,425.6	5,164.2	6,028.1
NET PROFIT (Rs. crs)	245.7	277.4	366.8	489.3
EPS (Rs.)	6.5	7.3	9.6	12.8
PE (x)	33.2	29.5	22.3	16.7
PRICE/BOOK (x)	6.6	5.5	4.5	3.6
EV/EBITDA (x)	16.8	13.6	11.5	9.5

I recommend BUY on the stock with the target of Rs. 350.00 for the long term.

For short term if one wants to play Budget -  Buy at Current Market Price with the target of Rs. 230, But please do keep a STRICT STOP LOSS OF 8 %. 

For LONG term investors BEST buy is at Rs. 180 - 195.

THE BASICS OF CAPITAL BASE : EXPLAINED IN SHORT !!!

Many beginners ask me that what is share capital and how a company is formed, so here is a short explanation to that. Company can have Equity Shares, Preference Shares and or Differential Voting Rights Equity shares as its Share Capital. 

Share Capital denotes to the amount of capital raised by the issue of shares (viz Equity, Preference, DVR or all of them), by a company. It is collected through the issue of shares and remains with the company till its liquidation. Share Capital is owned capital of the company, since it is the money of the shareholders & so these share holders are the owners of the company. The total share capital is divided into small parts & each part is called a 'SHARE'. Share is the smallest part of the total capital of company. 

In India, Share holding of 51% in a company is considered as a controlled holding. Any company willing to go public or willing to have an IPO has to maintain at least 10% of its total issued shares with the general public. Recently SEBI have extended the deadline for all the companies in India to maintain at least 25% of their total issued shares with the general public. So, it means promoters cannot hold more than 75% of the total issued shares in a company. 25% public shareholding is must.

Types of SHARE CAPITAL : 
Authorized Capital - The maximum amount of capital which a company can collect or raise by selling its shares, it is also known as Nominal Capital or Registered Capital. Issued Capital -  Is the part of the Authorized capital which is actually issued to general public. Subscribed Capital - Is the part of the issued capital which is actually subscribed by the general public. Paid Up Capital - Is that part of the called up capital which is actually paid up by the shareholders. Now in general companies are not in practice to have partly paid up or call up money. The Company takes full face value money on the issue. So fully paid up Face value is the Paid Up Capital of the Company.

What is Share Capital Base :
When I form a company, I use my personal wealth as Capital i.e. I invest my own money into the company and into the business activities. In the process of forming & registering a new company under the Companies Act 1966 it needs to be Capitalized whereby I infuse money or assets into the company and get shares of that company in return. e.g. If I infuse Rs. 5000 or assets worth Rs. 5000 to form a company , I will be getting Shares worth Rs. 5000 of that newly formed company & so I become the promoter of the company. Capitalization is the process in which owners have to come with number of shares and its face value.

Here in India, per share value used is Rs. 10 , Rs. 5, Rs. 2, Re. 1 as its face value  which is then multiplied by number of shares issued or divided by total invested money. Let’s take some example – In my company I invest Rs. 5,000 - Thus the capitalization of my company is as follows –

1. Authorized capital is Rs. 5,000 i.e. 500 Shares x Rs. 10/share.
2. Paid up Equity Capital is Rs. 5,000, thus Rs. 5,000 becomes the total capital base of my company at the time of registration or inception.

There can also be second scenario where, I can have my capital base of Rs. 6,000…but I paid only Rs. 5,000. Therefore –

1. Authorized capital will be Rs. 6,000 i.e. 600 shares x Rs. 10 each.
2. Issued, Subscribed & Paid up Equity share capital is Rs. 5,000 i.e. issued capital is only of Rs. 5,000 & Issued equity shares is only 500 shares.

This is also the VALUE of business because it is still not generating any profits or it is still not established etc. I will use the second scenario for the further discussion which is in usual practice. To increase the value of my company, I work hard and increase the value of my company by branding, marketing, market positioning, revenue, profits, future potential, and market share. I keep all the profits as I am the only share holder having all the company's paid up equity capital and so my business has high net-worth. The total earnings of my company are divided by 500 shares. So the company’s Earnings Per Share (EPS) is based on 500 shares that are issued to me.

Remember, according to my authorized capital, I still have 100 shares of Rs. 10 face value more remaining to be issued. They are not yet issued or not been paid up & hence authorized capital is not considered while calculating EPS - its just taken as a note.

Going forward, at some point in the future, I feel that I am in need of more money or capital for the expansion or I want to grow my business – I have 2 ways – either I can go to banks or  go to other sources of finance or I forgo a little bit of my equity holdings.

If I go to banks which are loans/debts taken from banks – then I have to pay Interest which under all circumstances I have to pay. And, If I issue shares i.e. I forgo a little bit of my equity holding then in this case I don’t have to pay interest to them (my new shareholders) nor its compulsory to declare dividends, but I have to share my profits, losses and even bankruptcy with my new shareholders.

            So I decide to go for raising capital by diluting the equity i.e. I am taking additional partners by issuing them new shares. These partners can be Private Equity players, financial institutions or any public investor (if it is opened to common public which is called IPO) which will be my new shareholders. During this course of time, the value of my business has raised much more than Rs. 6,000 as it is now an established business making lots of good profit and with lots of potential & whoever wishes to become partner or stakeholder will be getting partial ownership of the well established profitable business with minimum risk and so I will be demanding Premium on the face value of Rs. 10 from my new shareholders, this premium will be as per the present value of the business.

How to determine Present Value – 

For example – Consider that the present value of the business comes to Rs. 1,20,000. With this increased value of the business, the market value per share will be Rs. 200/share. (Rs. 1,20,000/600 shares). I decide to issue 50 share from remaining 100 shares to go public. I use public offering (IPO) & price my share at Rs. 200/sh. I raise Rs. 10,000 (50 x Rs. 200). Now, the capital structure is as under –

1. Authorised capital is still Rs. 6,000 (600 sh of Rs.10 each).
2. Issued, Subscribed & Paid up Equity is Rs. 5500 (original 500 sh & additional 50 share).
3. Share premium Account will now come to existence with Rs. 9500 (Rs. 10,000 – 50 x 10)  

Share premium is considered as part of total shareholders’ equity. Additional money beyond face value is called Share Premium. Total Shareholder's Equity is also known as Net-worth or Stockholders Equity or Shareholders Fund or Share Capital.

            A company can also issue Preference shares or DVR share along with Equity shares. Many beginners presume that Equity base is the IPO price x IPO shares, but the fact is that in IPO the owner is only opening partial ownership to raise additional capital for growing business. At this point the total earnings of the company is divided by 550 shares. Because now a total of 550 shares have been issued & issued subscribe & paid up equity has increased to 550 shares. Even though the mass public has only 50 shares, it is not the only shares in company, IPO shares are add on to existing 500 shares. 

Company issues lavish Bonuses of Shares before IPO -
If one reads the Draft Red Herring Prospectus of any IPO one will notice that before the IPO the promoters or pre IPO shareholders are given lavish bonuses of shares reducing the net worth of company and increasing the issued, subscribed & paid up capital base of the company. I have seen some issues whereby the promoters are given bonus in the ratio of 100 shares for every 1 share held before the IPO this makes the promoter's acquisition price of equity share less than its Face value, in some cases it goes into paise. This is because before IPO, the value of shares are much higher due to the past profits are accumulated as "Reserves" in the balance sheet. And to draw back my capital I issue fresh new shares as bonus thus reducing my reserve to that extend and hence increasing the share base reducing its value. You can see many big investors exit wholly or partially in the IPO as they already have taken back their invested money in the form of Bonus shares, So one should also consider this while investing in the IPO's.