The initial public offering (IPO) of Divgi TorqTransfer Systems Ltd was subscribed 12% on Day 1. The public issue that opened for subscription on Wednesday, March 1, will close on Friday, March 3.
The company has fixed the price band at ₹560 to 590 per equity share for the proposed initial public offer. Investors may submit bids for a minimum of 25 equity shares and in multiples thereof.
While 75% of the issue has been put aside for eligible qualified institutional investors, 15% is open to non-institutional bidders, and the remaining 10% is allocated for retail investors.
On Day 1 of subscription, retail buyers responded favourably by subscribing to 60% of the issue, the non-institutional bidders' portion was subscribed 6%, and qualified institutional investors' segment was subscribed 4%.
The IPO comprises of a fresh issue of equity shares valued at ₹180 crore and an offer for sale (OFS) of 39.34 lakh shares by investors and other selling shareholders valued at ₹232 crore. Arun Ramdas Idgunji, Kishore Mangesh Kalbag, Bharat Bhalchandra Divgi, Sanjay Bhalchandra Divgi, Ashish Anant Divgi, NRJN Family Trust, and Oman India Joint Investment Fund II are a few of those who will sell the stock.
According to the Red Herring Prospectus, the company plans to utilise the net proceeds from the fresh issue to fund capital expenditure requirements and to manage general corporate purposes.
The book running lead managers (BRLM) of the issue are Inga Ventures Private Ltd and Equirus Capital Private Ltd. The registrar to the offer is Link Intime India Private Ltd. The equity shares are proposed to be listed on NSE and BSE.
What do brokerages say?
Being one of the few suppliers in India with the capacity to develop and provide system level transfer case, torque coupler, and dual clutch transmission (DCT) solutions, the company has strong, long-standing relationships with a number of prestigious domestic and international original equipment manufacturers (OEMs) in the automotive industry. Additionally, its public offer has reasonable valuations and the company has a demonstrated history of financial performance and growth. All these factors have left a lasting impression on majority of brokerage houses.
One of the reasons HEM Securities Ltd has given the issue a 'Subscribe for long term' rating is that the company enjoys long-term relationships with marquee domestic and global customers.
According to the brokerage's report, the company also exhibits a consistent financial performance while putting an emphasis on its capacity for innovation and research and development (R&D).
Additionally, the company's strategically situated manufacturing facilities, as per the brokerage, are able to produce high precision components that adhere to system-level design intent.
Brokerage ICICI Direct Research too has recommended 'Subscribe for long term' rating for the issue.
"We like Divgi TorqTransfer Systems for its technical prowess in transmission space and incremental revenue streams coming on broad going forward in electric vehicle (EV) transmission as well as Dual Clutch transmission space," said the brokerage in its report.
However, the brokerage highlighted some risks, including client concentration risk—where the top five customers account for over 90% of sales and the single largest customer generates more than 50% of total sales, ongoing geopolitical tensions that have an impact on exports, and a high reliance on imported content and raw materials that can have an impact on production capacity during times of disruption in the global supply chain.
Brokerage Nirmal Bang Securities Pvt Ltd has also recommended 'Subscribing to the issue from long term perspective'. The brokerage claimed in its report that the company intended to take benefit of its position in the rapidly expanding utility vehicles (UV) automatics sector.
"With OEMs entirely dependent on imports for DCT, the company will be the only manufacturer of DCT systems in India. Also recently, the company has been awarded a contract for supply of EV transmission systems. Further such wins could propel the company into a higher growth orbit," added the brokerage in its report.
Brokerage house Canara Bank Securities Ltd has recommended 'Subscribe IPO for listing as well as long term' rating to the issue.
The brokerage in its report said that apart from the company's impressive clientele list that includes Mahindra & Mahindra, Tata Motors and BorgWarner over the last two decades, the company’s EV transmission product gives the opportunity to grab market share in growing EV space.
"The company has focus on R&D to manufacture diverse products and expand into new and emerging trends. Further, it has established track record of growth and financial performance. The company witnessed return on equity (ROE) and return on capital employed (ROCE) of 13.57% and 29.47% in FY2022, respectively, and is virtually debt free as on September 2022. On valuation front, the company is available at 35.20x price-to-earnings (PE) for FY22 which is quite attractive to the industry peers," said the brokerage.
Brokerage firm Reliance Securities Ltd has a 'Neutral' rating on the public issue. According to the brokerage, the company is one of the very few manufacturers in India for system level transfer case, torque coupler and DCT solutions. It is also entering into EV components having won an order from a leading EV player in India.
"However, the company is highly dependent on its top 5 customers for business which is a concentration risk. Valuation at 35x P/E leaves limited upside," added the brokerage in its report.
Brokerage house Marwadi Financial Services has assigned 'Subscribe' rating to the IPO on the backdrop of the company being among very few suppliers in India having the capability to develop and provide system-level transfer cases, torque couplers, DCT solutions and transmission systems for EVs. Further, the it believes the public issue will be available at a reasonable valuation as compared to its peers.
Similarly, brokerage BP Equities Pvt Ltd too has recommended 'Subscribe' rating to the issue.
"Going forward, the company’s approach to focus on its R&D in response to serving emerging trends and improving its market share by catering to new customers bodes well with its growth strategy plan. On the upper end of the price band, the issue is valued at a P/E of 35.2x based on FY2022 earnings, which is one of the lowest compared to the listed peer group. Also, the company maintained a healthy financial performance despite the overall slowdown in the global automotive sector in FY2020 and the impact of the COVID-19 pandemic," said the brokerage.