RR Kabel IPO GMP (Grey Market Premium)

RR Kabel IPO worth ₹1,964.01 crore comprises of an offer for sale and also of a fresh issue of shares. 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 ₹983 to ₹1,035 per share and the IPO allotment price will be discovered post the book building of shares being completed during the IPO process. For our analysis, the upper end of the band is assumed.

Details of the RR Kabel IPO

RR Kabel IPO will be a combination of a fresh issue and an offer for sale (OFS). The fresh issue portion comprises the issue of 17,39,130 shares (17.39 lakh shares approximately), which at the upper price band of ₹1,035 per share implies fresh issue size of ₹180 crore. The offer for sale (OFS) portion of the IPO comprises the sale of 1,72,36,808 shares (172.37 lakh shares approximately), which at the upper price band of ₹1,035 per share implies an offer for sale (OFS) size of ₹1,784.01 crore. Out of the 172.37 lakh shares sold in the OFS, TPG Asia will sell 129.02 lakh shares and Ram Ratna Wires will sell 13.64 lakh shares. Both are non-promoter shareholders. The balance 29.71 lakh shares will be offered in the OFS by the 4 promoter shareholders. Therefore, the overall IPO will comprise of 1,89,75,938 shares (189.76 lakh shares approximately), which at the upper price band of ₹1,035 per share will mean total IPO issue size of ₹1,964.01 crore.

The issue opens for subscription on 13th September 2023 and closes for subscription on 15th September 2023 (both days inclusive). The basis of allotment will be finalized on 21st September 2023 and the refunds will be initiated on 22nd September 2023. In addition, the demat credits are expected to happen on 25th September 2023 and the stock is scheduled to list on 26th September 2023 on the NSE and the BSE.

Understanding the GMP for RR Kabel IPO

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 RR Kabel Ltd, we already 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.

RR Kabel IPO GMP

Here is a quick GMP summary for RR Kabel IPO for which the data is available.

In the above case, the GMP trend shows that the grey market premium has opened at around ₹40, but now its up by ₹104 per share over the next trading day too. However, it must be remembered that initially the stock was trading in the grey market without the price band for the IPO being announced. The price band was just announced a day ago and hence one can expect some sharp changes in the future as far as GMP is concerned. However, the GMP level is still indicative of moderate traction for the IPO grey market price. Of course, we have to await for the actual subscription numbers to flow in when the issue opens for subscription on 13th September 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, RR Kabel Ltd has shown moderate traction in the grey market.

If you consider the upper end of the price band of RR Kabel Ltd at ₹1,035 as the indicative price, then the likely listing price is being signalled at around ₹1,075 per share as of the GMP indicator on 08th September 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 ₹40 on a likely upper band pricing of ₹1,035 indicates a listing premium of a moderate 3.86% for RR Kabel Ltd over the listing price. That pre-supposes a listing price of approximately ₹1,075 per share, when RR Kabel Ltd lists on 26th September 2023. Of course, these are approximations, so you must keep a margin of safety. However, from here on, a lot will depend on the GMP sustaining over the next few days after the issue opens, as well as the subscription flow into the company IPO.

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.

Read more about RR Kabel IPO

Brief on RR Kabel Ltd business model

RR Kabel Ltd Incorporated in the year 1995 and can be classified predominantly as an FMEC (fast moving electrical goods) company. The company, essentially, provides consumer electrical products for use in residential, commercial, industrial, and infrastructure applications. RR Kabel Ltd has 2 broad verticals. The first vertical is the wires and cables business which includes home wires, industrial wires, and special cables. These are directly supplied to OEM users. The second vertical of RR Kabel Ltd is the FMEG vertical comprising fans, lighting products, switches, and other electrical appliances.

Currently, RR Kabel Ltd manufactures and markets wires and cable products under the brand name RR Kabel while the FMEG products are sold under the brand name of Luminous Fans and Lights to distinguish the FMEG segment from the cables segment. Currently, the company has 2 manufacturing units located at Waghodia, Gujarat and at Silvassa. These units primarily manufacture wires, cables, and switches. In addition, its 3 integrated manufacturing facilities at Roorkee, Uttarakhand; Bengaluru, Karnataka; and Gagret, Himachal Pradesh implement the manufacturing operations in respect of FMEG products.

RR Kabel has a strong positioning in the domestic market and also in the global market. It derives nearly 71% of its revenues from the wires and cables segment with only the balance coming from the FMEG segment. However, more than 97% of the sales of the FMEG products comes from the B2C channel, making it a highly scalable business model. The IPO of RR Kabel Ltd is lead managed by Axis Capital, Citigroup Global Markets, HSBC Securities and JM Financial, acting as book running lead managers (BRLM) to the issue. Link Intime India Private Ltd will be the registrar to the issue.