Divgi TorqTransfer Systems IPO GMP (Grey Market Premium)

Divgi TorqTransfer Systems IPO worth Rs. 412.12 crore, comprises of a fresh offer of Rs. 180 crore and an offer for sale (OFS) of Rs. 232.12 crore. The offer for sale (OFS) component is by the promoters and early shareholders of the company. However, it must be noted that while the fresh issue component infuses fresh funds into the company, it also tends to be EPS dilutive and equity dilutive. On the other hand, the OFS purely results in 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. 560 to Rs. 590 per share and the IPO allotment price will be discovered post the book building of shares being completed during the IPO process.

Divgi TorqTransfer Systems IPO opens for subscription on 01st March 2023 and closes for subscription on 03rd March 2023 (both days inclusive). The basis of allotment will be finalized on 09th March 2023 and the refunds will be initiated on 10th March 2023. In addition, the demat credits are expected to happen on 13th March 2023 and the stock is scheduled to list on 14th March 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 Divgi TorqTransfer Systems Ltd, we only have GMP data for the last 2 days, which should give a reasonable 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, 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 Divgi TorqTransfer Systems IPO for which data is available:

In the above case, the GMP trend shows that the grey market premium has opened at around Rs. 70, and is now trading down around Rs. 30. Of course, we have to await for the actual subscription numbers to flow in when the issue closes for subscription on 03rd March 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, Divgi TorqTransfer Systems Ltd has shown good traction in the grey market.

If you consider the upper end of the price band of Divgi TorqTransfer Systems IPO at Rs.590 as the indicative price, then the likely listing price is being signalled at around Rs. 660 per share as of the GMP indicator on 02nd 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.

Divgi TorqTransfer Systems IPO GMP of Rs. 70 on a likely upper band pricing of Rs. 590 indicates a listing premium of a moderately healthy 11.86% for Divgi TorqTransfer Systems Ltd over the listing price. That pre-supposes a listing price of approximately Rs660 per share, when Divgi TorqTransfer Systems Ltd lists on 14th 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.

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Divgi TorqTransfer Systems Ltd is a 6 decades old company engaged in the manufacture of automotive components. They provide system-level transfer cases, torque couplers and dual-clutch automatic transmission solutions. Divgi TorqTransfer Systems Ltd is a leading supplier of transfer case systems for automotive OEMs and for passenger vehicle (PV) manufacturers in India. It is also the sole exporter of transfer case systems.

Divgi TorqTransfer Systems is among the few companies in India that serve as, systems-level solution providers as well as component kit suppliers to global OEMs (original equipment manufacturers) and Tier I transmission systems suppliers . The IPO will be lead managed by INGA Ventures Private Limited and Equirus Capital Private Limited. The registrars to the issue are Link Intime India Private Limited.