Valuation Metrics

In the secondary market (stocks), we have charts. In the primary market (IPO), we only have Value. IPO pricing is a negotiation between the Company (wants high price) and Investors (want low price).

1. Price-to-Earnings (P/E) Ratio

The gold standard.

• Formula: Issue Price / Earnings Per Share (EPS)
• Comparison: You MUST compare it with Listed Peers.
• Example: Burger King IPO comes at P/E of 50. Jubilant Foodworks (Dominos) trades at P/E of 80.
• Verdict: Burger King is "cheaper" compared to industry leader. Attractive.
• If the IPO P/E is HIGHER than the industry leader? Expensive. Avoid.

2. Grey Market Premium (GMP)

The GMP is the unofficial street price of the IPO application before listing.

• GMP = ₹50: Means buyers are willing to pay Issue Price + ₹50.
• Percentage: Essential to check. A ₹50 GMP on a ₹1000 stock is 5% (Low). A ₹50 GMP on a ₹100 stock is 50% (High).
• Warning: GMP can be manipulated by operators for small IPOs. Use it as a sentiment gauge, not a guarantee.

3. Price-to-Sales (P/S) Ratio

Used for loss-making startups (Zomato/Paytm era).

• Since P/E is negative (Loss), we check how much we pay for every ₹1 of revenue.
• Anything > 10-15x Sales is considered extremely risky unless growth is 50%+.

4. Anchor Investor Interest

One day before the IPO opens, "Anchor Investors" (Big Mutual Funds/FIIs) buy in.

• Look at the names. If Goldman Sachs, SBI MF, HDFC MF are buying? Validation.
• If unknown names or obscure foreign funds? Suspicious.