De Neers Tools IPO GMP (Grey Market Premium)

De Neers Tools IPO worth Rs. 22.99 crore, comprises entirely of a fresh issue of the said amount. The price band has been fixed in the range of Rs. 95 to Rs. 101. The fresh issue portion entails the issue of 22.764 lakh shares which at the upper end of the price band at Rs. 101is worth Rs. 22.99 crore. The fresh issue portion, which is the entire IPO, entails the issue of 22.764 lakh shares which at the upper end of the price band at Rs. 10 is worth Rs. 22.99 crore. Since there is no OFS component, it is also the total size of the issue.

The stock of De Neers Tools Ltd has a face value of Rs10 and bidders can only bid in minimum lot size of 1,200 share each, entailing a minimum investment of Rs. 121,200 in the IPO at the upper end of the price band of Rs. 101 per share. That is also the maximum that a retail investor can bid in the IPO. HNIs, NIIs can bid for minimum of 2 lots of 2,400 shares entailing an investment of Rs. 242,400. The table below captures the lot sizes permissible.

As per the terms of the offer, 50% of the net offer is reserved for the qualified institutional buyers (QIBs), 15% of the offer is reserved for the HNI / NII investors and the balance 35% is reserved for the retail investors. It is a Book Built issue with the price band and the final price will be discovered through book building process. Share India Securities Ltd will act as the market maker for the SME IPO of De Neers Tools Ltd. The company has set aside 115,200 shares for the market maker. The table below captures the gist.

The issue opened for subscription on 28th April 2023 and closes for subscription on 03rd May 2023 (both days inclusive). The basis of allotment will be finalized on 08th May 2023 and the refunds will be initiated on 09th May 2023. In addition, the demat credits are expected to happen on 10th May 2023 and the stock is scheduled to list on 11th May 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 De Neers Tools Ltd, we already have GMP data for the last 6 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 GMP summary for De Neers Tools IPO for which the data is available.

In the above case, the GMP trend shows that the grey market premium has opened at around Rs. 5, and has been improved to Rs. 43. 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, De Neers Tools Ltd has shown good traction in the grey market.

If you consider the upper end of band price of the IPO of De Neers Tools Ltd at Rs. 101, then the likely listing price is being signalled at around Rs106 per share as per the GMP indicator on 03rd May 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.

The GMP of Rs5 on the upper end of the book built IPO price of Rs101 indicates a listing premium of a healthy 4.95% for De Neers Tools Ltd over the listing price. That pre-supposes a listing price of approximately Rs106 per share, when De Neers Tools Ltd lists on 11th May 2023. Of course, these are approximations, so you must keep a margin of safety. One needs to observe the trend of GMP closely as that gives the best hints on listing status. Look at the time series trend than on numbers.

Here is a quick background of De Neers Tools Ltd. The company was incorporated in 1952 to manufacture and supply industrial tools. These include a whole range of instruments like spanners, wrenches, pliers, cutters, Allen keys, hammers etc. It has a network of 250 dealers pan-India and sells its products under the brand name of “De Neers”. It is also into the manufacture of non-sparking tools, stainless steel tools, magnetic tools, titanium tools etc. some of its premium clients include Tata Steel, IOCL, L&T, Polycab, Indian Railways etc.

The fresh issue portion will be used to fund its working capital expenditure. The issue will be lead managed by Khambatta Securities Ltd and Share India Services Ltd while the registrars to the SME IPO of De Neers Tools Ltd will be Bigshare Services Private Ltd.