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Aug 10, 2017 08:26 AM IST | Source: Moneycontrol.com

Grey market premium soars on Security and Intelligence IPO; listing likely at 10-15% premium

The price quoted in the grey market is the ‘premium’ over the likely issue price. So when brokers say the IPO is quoting at Rs 85-90 in the grey market, it means that the appetite for the issue is Rs85-90 above the issue price.

Grey market premium soars on Security and Intelligence IPO; listing likely at 10-15% premium

Kshitij Anand

Moneycontrol News

Security and Intelligence Services (India) Ltd (SIS) is set to list its equity shares on exchanges on Thursday, August 10 commands a grey premium of 10-15 percent above its issue price, suggest experts tracking the issue.

The Rs780-crore public issue, which was opened for subscription between July 31 and August 2, was oversubscribed 7 times. The issue price is fixed at the higher end of price band of Rs805-815 per share.

SIS is the second largest security services provider in India, which provides private security and facility management services across India and Australia.

“The company reported a good performance with ROE of 16.4 percent which is comparatively higher than its peers coupled with stable growth in revenue at CAGR of 14.6 percent over last 5 years,” Dinesh Rohira, Founder & CEO, 5nance.com told Moneycontrol.

“Given the considerable upside in forward looking earnings and substantial valuation, SIS should get listed at a premium of Rs 85-90 above its price band,” he said.

The price quoted in the grey market is the ‘premium’ over the likely issue price. So when brokers say the IPO is quoting at Rs 85-90 in the grey market, it means that the appetite for the issue is Rs85-90 above the issue price.

The funds raised through fresh issue would be used for repayment and pre-payment of a portion of certain outstanding indebtedness availed by company (about Rs 200 crore); funding working capital requirements (Rs 60 crore); and general corporate purposes.

The Security and Intelligence Services provides security services both in India and Australia with diverse solutions across the security spectrum.

The portfolio of services includes security design and solutions, fire safety, event security, VIP protection, aviation security, emergency response, investigation work and integrated technology solutions providing man-tech solutions.

The company clocked revenues of Rs 4,600 crore in the financial year 2016-17 employing 1.54 lakh people. Total revenue grew at a CAGR of 14.56 percent to Rs 4,577.122 crore for the fiscal year 2017 from Rs 2,657.7 crore for the fiscal year 2013.

Revenue from operations from security services business in India grew at a CAGR of 29.67 percent and revenue from operations from security services business in Australia grew at a CAGR of 7.7 percent in Australian dollar terms in FY13 and FY17.

“The company is demanding 61.8-62.5x P/E ratio of its FY17 earnings at price of 805-815 at FY 17 earnings of 13.3. We believe that the company is demanding slightly premium value for the stock,” GEPL Capital told CNBC-TV18.

“The company has better management and better business matrix which will help to grow in the better momentum. We believe that higher valuation may restrict them to gain higher listing gains. We can see 10-15 percent upside potential on listing i.e Rs 85-90 gain,” it said.

Large grey market premium depends more on company’s fundamentals. The grey market price also factors in the cost of funding for high net worth individuals, who make big bets using borrowed money.

IPO usually provides an opportunity to pick shares at the relatively lower price considering their future growth expectation. It will certainly benefit the retail investors with a limit corpus to par take on such fundamental stock to build a portfolio with longer time horizon, suggest experts.

“A listing with significant premium will favour HNI with high leverage position to capitalized through premium and settle their outstanding. Lastly, any premium listing usually buoyant company’s goodwill which facilities them to execute their expected post-listing plan in an efficient routine,” said Rohira.
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