Chaman Metallics IPO GMP (Grey Market Premium)

Chaman Metallics IPO, worth Rs. 24.21 crore comprises entirely of a fresh issue of the IPO amount. The total SME IPO of Chaman Metallics Ltd entails the issue of 63.72 lakh shares at a price of Rs. 38 per share aggregating to Rs. 24.21 crore. The stock has a face value of Rs. 10 and bidders can only bid in minimum lot size of 3,000 share each, entailing a minimum investment of Rs. 114,000 in the IPO. That is also the maximum that a retail investor can apply for in the IPO. HNIs / NIIs can bid for minimum of 2 lots comprising of 6,000 shares and having a bid value of Rs. 228,000. As per the terms of the offer, 50% of the net offer is reserved for the retail investors and the balance 50% for the HNI / NII investors. It is a fixed price issue and Hem Finlease Private Limited will act as the market maker for the SME IPO of Chaman Metallics Ltd.

The issue opens for subscription on 04th January 2023 and closes for subscription on 06th January 2023 (both days inclusive). The basis of allotment will be finalized on 11th January 2023 and the refunds will be initiated on 12th January 2023. In addition, the demat credits are expected to happen on 13th January 2023 and the stock is scheduled to list on 16th January 2023 on the NSE SME segment. This is the segment, in contrast to the mainboard, where IPOs of small and medium enterprises (SMEs) are incubated. 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 Chaman Metallics Ltd, we already have GMP data for the last 4 days, which should give a reasonable picture of the likely listing.

There are 2 factors that impact the GMP. Firstly, the market conditions have a deep impact on the GMP, especially the liquidity conditions in the market. Secondly, the extent of subscription for the IPO has a deep impact on the GMP as it is indicative of investor interest in the stock. GMP can also technically be in negative, which means the stock would list at a discount to the issue price.

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  summary for Chaman Metallics IPO GMP:

In the above case, the GMP trend shows that the grey market premium has opened at around Rs. 20, but later tapered to Rs. 23 levels. However, in early GMP trends on Friday 16th January 2023, the GMP has jumped sharply to Rs. 29 levels. Of course, we have to await for the actual subscription numbers to flow in when the issue opens for subscription and also watch the progress, 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, Chaman Metallics Ltd has shown good traction in the grey market.

If you consider the price of the IPO of Chaman Metallics Ltd at Rs. 38, then the likely listing price is being signalled at around Rs. 61 per share as per the GMP indicator on 02nd January 2023. This is dynamic and keeps changing. One data point to track will be the subscription update on the stock as that would chart the GMP course from here.

The GMP of Rs. 23 on a fixed IPO price of Rs. 38 indicates a listing premium of a healthy 60.53% for Chaman Metallics Ltd over the listing price. That pre-supposes a listing price of approximately Rs. 61 per share, when Chaman Metallics Ltd lists on 16th January 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. 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.

Chaman Metallics was incorporated in 2003 and over the last 20 years has bene engaged in the business of manufacturing and selling of Direct Reduced Iron (sponge iron). Sponge iron is a key raw material for making steel through the electric arc furnace method and also the induction furnace method. Its sponge iron production capacity stands at 72,000 MTPA. Chaman Metallics sells its products in Maharashtra, Odisha and Chhattisgarh.

The IPO funds will be predominantly applied for working capital needs of the company. Post the IPO, the promoter share in equity will dilute from 100% to 73.60%. The issue is being lead managed by Hem Securities Ltd. Link Intime India Private Limited will be the registrars to the issue.