Bikaji Foods International IPO: GMP (Grey Market Premium)

Bikaji Foods International IPO worth Rs.881.22 crore, comprises entirely of an offer for sale of the said amount. There is no fresh issue component to the IPO, so there is no fresh funds coming into the company or any equity / EPS dilution due to the IPO. The issue has been priced in the band of Rs.285 to Rs.300 per share and the IPO allotment price will be discovered post the book building of shares being completed during the IPO process. 

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The issue opens for subscription on 03rd November 2022 and closes for subscription on 07th November 2022 (both days inclusive). The basis of allotment will be finalized on 11th November 2022 and the refunds will be initiated on 14th November 2022. In addition, the demat credits are expected to happen on 15th November 2022 and the stock is scheduled to list on 16th November 2022. 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 Bikaji Foods International Ltd, we already have GMP data for the last 4 days, which should give a reasonable picture of the likely listing performance.

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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, it has been observed to be 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 Bikaji Foods International, data is available.

In the above case, the GMP trend shows that the grey market premium has opened on 28th October at around Rs90 but has since tapered to the Rs72 mark. Of course, we have to await for the actual subscription numbers to flow in when the issue opens for subscription on 03rd November, 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, Bikaji Foods International Ltd has shown good traction in the grey market.

If you consider the upper end of the price band of Bikaji Foods International Ltd at Rs.300 as the indicative price, then the likely listing price is being signalled at around Rs.372 per share. 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.72 on a likely upper band pricing of Rs.300 indicates a listing premium of a healthy 24.00% for Bikaji Foods International Ltd over the listing price. That pre-supposes a listing price of approximately Rs.372 per share, when Bikaji Foods International Ltd lists on 16th November 2022. 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.