Avalon Technologies IPO GMP (Grey Market Premium)

Avalon Technologies IPO worth Rs. 865 crore, comprises of a fresh issue of 73,39,450 shares and an offer for sale of 1,25,00,000 shares. The price band for the IPO of Avalon Technologies has been fixed in the range of Rs. 415 to Rs. 436. Hence, at the upper end of the price band, value of the fresh issue comes to Rs. 320 crore and the OFS comes to Rs. 545 crore. The overall issue of Avalon Technologies will comprise of the issue of 1,98,39,450 equity shares, which at the upper end of the price band takes the issue size to Rs. 865 crore.

The offer for sale (OFS) component is by the promoters and early shareholders of the company. Here it must be noted that while the fresh issue component infuses fresh funds into the company, it also is EPS dilutive and equity dilutive. On the other hand, the OFS is just a transfer of shares so there is no fresh infusion of funds, but it also does not dilute the equity. The issue has been priced in the band of Rs. 415 to Rs. 436 per share and the final IPO allotment price will be discovered post the book building of shares being completed during the IPO process.

The issue opens for subscription on 03rd April 2023 and closes for subscription on 06th April 2023 (both days inclusive). The basis of allotment will be finalized on 12th April 2023 and the refunds will be initiated on 13th April 2023. In addition, the demat credits are expected to happen on 17th April 2023 and the stock is scheduled to list on 18th April 2023 on the NSE and the BSE. The grey market price (GMP) trading normally starts about 4-5 days prior to IPO opening and continues till the listing date. In the case of Avalon Technologies Ltd, we already have GMP data for the last 2 days, which should give a preliminary picture of the likely listing performance.

There are 2 factors that impact the GMP. Firstly, the market conditions have a deep impact on the GMP, which includes the levels of the Nifty and Sensex as well as the general IPO market and macro conditions. Secondly, the extent of subscription for the IPO across the retail and the QIB segments also has a deep impact on the GMP as it is indicative of investor interest in the stock. Generally, strong QIB subscription is a trigger for a spike in GMP.

There is one small point to remember here. The GMP is not an official price point, just a popular informal price point. However, in most cases, the observation has been that it is a good informal gauge of demand and supply for the IPO. Hence it does give a broad idea of how the listing is likely to be and how the post-listing performance of the stock would be.

GMP tends to be a good mirror of the real stock story. More than the actual price, it is the GMP trend over time that gives insights about which direction the wind is blowing. Here is a quick GMP summary for Avalon Technologies Ltd for the 2 days, data is available.

In the above case, the GMP trend shows that the grey market premium has opened at around Rs. 24, and has dropped to Rs. 7. Of course, we have to await for the actual subscription numbers to flow in when the issue opens for subscription on 03rd April 2023, as that would have a very significant impact on the GMP. In the past, stocks which got oversubscribed in the IPO also saw a very robust positive shift in the grey market pricing. For a start, Avalon Technologies Ltd has shown reasonable traction in the grey market.

If you consider the upper end of the price band of Avalon Technologies Ltd at Rs. 436 as the indicative price, then the likely listing price is being signalled at around Rs. 460 per share as of the GMP indicator on 28th March 2023. One data point to track will be the subscription update on the stock as that would chart the GMP course from here. As mentioned, the institutional QIB subscription is a key trigger for the GMP pricing.

The GMP of Rs. 24 on a likely upper band pricing of Rs. 436 indicates a listing premium of a moderate 5.50% for Avalon Technologies Ltd over the listing price. That pre-supposes a listing price of approximately Rs.460 per share, when Avalon Technologies Ltd lists on 18th March 2023. Of course, these are approximations, so you must keep a margin of safety. However, that would depend on the GMP sustaining over the next few days after the issue opens.

GMP (grey market price) is an important indicator, albeit informal, of likely listing price. One cannot take this price at face value However, the GMP tends to be quite dynamic and changes direction with the flow of news and events. Investors must note here that this is just an informal indication and has no official acceptance. The best thing one can do with the GMP is to observe the trend closely as that gives the best hints on listing status. Focus on the time series trend than on numbers.

Avalon Technologies Ltd is a 24 year old company into the fast growing Electronic Manufacturing Services (EMS) business. EMS companies specialize in manufacturing niche electronic products on contract basis on behalf of large manufacturers. Avalon Technologies delivers box-built solutions in India on an end-to-end basis, apart from customized solutions to cater to unique needs of customers. Avalon offers a full stack products and solutions.

Key products and solutions offered include printed circuit board (PCB) design and assembly to the manufacture of complete electronic systems (Box Built). Indian companies are looking to set up giga factories to manufacture chips in India to make the best of China Plus policy to be adopted by most western countries. Its major customers include original equipment manufacturers (OEM) based out of China, the Netherlands, the US, and Japan. Avalon offers PCB design and assembly, cable assembly, wire harnesses, sheet metal fabrication and machining. Avalon Technologies provides high-end design support, apart from manufacturing on a contract basis for domestic and global customers.