Udayshivakumar Infra IPO GMP (Grey Market Premium)

Udayshivakumar Infra IPO worth Rs. 66 crore, comprises entirely of a fresh offer of shares of the said amount. There is no offer for sale (OFS) component in this IPO. 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 mere represents a transfer of shares so there is no fresh infusion of funds, but it also does not dilute the equity. In this case, there would be equity dilution. The issue has been priced in the band of Rs33 to Rs35 per share and the IPO allotment price will be discovered post the book building of shares being completed during the IPO process.

The issue opens for subscription on 20th March 2023 and closes for subscription on 23rd March 2023 (both days inclusive). The basis of allotment will be finalized on 28th March 2023 and the refunds will be initiated on 29th March 2023. In addition, the demat credits are expected to happen on 31st March 2023 and the stock is scheduled to list on 03rd April 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 Udayshivakumar Infra Ltd, we already have GMP data for the last 6 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. The grey market is an informal market without an official sanction and is only used to informally determine what the likely listing price could be. However, in most cases, the grey market price (GMP) has been observed to be a good informal gauge of demand and supply for the IPO. Hence, the GMP does give a broad idea of how the listing is likely to be and how the post-listing performance of the stock would be; at least in the initial days after the listing of the IPO.

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 Udayshivakumar Infra 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, but now it has jumped to Rs. 10. Of course, we must await for the actual subscription numbers to flow in when the issue opens for subscription on 20th 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, Udayshivakumar Infra IPO has shown good traction in the grey market.

Udayshivakumar Infra IPO has announced a price band of Rs.33 to Rs. 35. If you consider the upper end of the price band of the company at Rs. 35 per share as the likely IPO price, then the likely listing price is being signalled at around Rs. 44 per share as of the GMP indicator on 16th 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.

The GMP of Rs. 9 on a likely upper band pricing of Rs35 indicates a listing premium of a healthy 25.71% for Udayshivakumar Infra Ltd over the listing price. That pre-supposes a listing price of approximately Rs. 44 per share, when Udayshivakumar Infra Ltd lists on 03rd 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.

Brief background of the company business

Udayshivakumar Infra Ltd is into road construction; a low margin but execution intensive business in India. Its prospects are directly linked to the infrastructure spending of the central and state governments. The company was incorporated in 2019. The product and services portfolio of Udayshivakumar Infra comprises of construction of a full range of roads including state highways, district roads, smart roads under the PM Smart City Project etc. Udayshivakumar Infra Ltd has primary operation in Karnataka. The company typically bids for roads, bridges, irrigation projects, canals, and industrial area construction with the various concerned agencies like the National Highways Development Corporation, the State Highway Development Corporations, various government departments and the PWD.

Udayshivakumar Infra Ltd has executed 30 projects in and around the State of Karnataka and is currently working on 25 ongoing infrastructure projects. The current IPO will enable the company to have a bigger balance sheet and higher risk capacity needed for bigger and larger projects in joint venture with other infra companies in the construction sector. The construction and infrastructure space are working capital intensive and the IPO funds will essentially go into filling this gap for their infrastructure projects. The IPO of Udayshivakumar Infra Ltd will be lead managed by Saffron Capital Advisors Private Limited while the registrars to the issue are MAS Services Ltd.