Sotac Pharmaceuticals IPO GMP (Grey Market Premium)

Sotac Pharmaceuticals IPO worth Rs.33.30 crore, comprises entirely of a fresh issue of the IPO amount. The total SME IPO of Sotac Pharmaceuticals Ltd entails the issue of 30.00 lakh shares in the price band of Rs105 to Rs111 per share. At the upper end of the price band, this aggregates to Rs33.30 crore. The stock 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 Rs133,200 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 of 2,400 shares entailing an investment of Rs266,400. 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 10% 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. Sunflower Broking Private Ltd will act as the market maker for the SME IPO of Sotac Pharmaceuticals Ltd. The company has set aside 150,000 shares for the market maker.

The issue opens for subscription on 29th March 2023 and closes for subscription on 03rd April 2023 (both days inclusive). The basis of allotment will be finalized on 10th April 2023 and the refunds will be initiated on 11th April 2023. In addition, the demat credits are expected to happen on 12th April 2023 and the stock is scheduled to list on 13th April 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 Sotac Pharmaceuticals Ltd, we already have GMP data for the last 2 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 Sotac Pharmaceuticals IPO for the 2 days, data is available.

In the above case, the GMP trend shows that the grey market premium has opened at around Rs. 6, but has since improved to Rs. 10 on the second day on which GMP data is available. 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, Sotac Pharmaceuticals Ltd has shown good traction in the grey market.

If you consider the upper end of band price of the Sotac Pharmaceuticals IPO at Rs111, then the likely listing price is being signalled at around Rs. 119 per share as per the GMP indicator on 28th March 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 Rs. 8 on the upper end of the book built IPO price of Rs. 111 indicates a listing premium of a healthy 7.21% for Sotac Pharmaceuticals Ltd over the listing price. That pre-supposes a listing price of approximately Rs. 119 per share, when Sotac Pharmaceuticals Ltd lists on 13th April 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.

Here is a quick background of Sotac Pharmaceuticals Ltd. The company was incorporated in 2015 in Gujarat. Sotac Pharmaceuticals Ltd is into the business of manufacturing pharma products for varied marketers on a loan license basis or contract basis. This is also known as contract manufacturing, which falls under the CRAMS model, where pharma companies offer the full range of services ranging from manufacturing to research to testing facilities.

Currently, SOTAC caters to over 162 institutional / corporate clients offering them contract manufacturing of pharmaceuticals. It currently has manufacturing capacity of 90 crore tablets per year, apart from capacity of 14 core capsules per year. The fresh funds from the IPO will be invested in its subsidiary and to upgrade existing premises. Currently, Sotac has a presence in 25 states, with a network comprising of 500 stockists, 10,000 prescribers and over 500,000 retail outlets. It has global footprint in the Philippines, Mauritius, Ghana, Yemen, Sri Lanka, Kenya, Mozambique, the USA, and others.