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Despite correction and uncertainty, Harsha Engineers still boasts a premium in the grey market

Harsha Engineers will make its debut on the bourses on September 26 in what will be the last listing of the month

September 23, 2022 / 04:42 PM IST
 
 
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Shares of Harsha Engineers International continued to enjoy a healthy trading premium in the grey market ahead of the company’s listing, though it is down by 20-25 percent in the last couple of days amid significant corrections and an uncertain environment in the secondary market.

The company will make its debut on the bourses on September 26 in the last listing of the month.

The maiden public issue of one of the largest bearings cage manufacturers globally received a robust response from investors, garnering 74.7 times subscription during September 14-16 with support from investors across the board, one of the reasons behind the healthy premium in the grey market.

Currently, the stock is trading at a 45-50 percent premium in the grey market over the issue price of Rs 330, analysts told Moneycontrol. Before the market correction, it quoted at a 65-70 percent premium.

The grey market is an unofficial trading platform for shares of companies that have gone in for an initial public offering (IPO) before they are officially traded on the stock exchanges. Generally, investors look at the grey market premium to know the listing performance of any IPO.

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The equity market corrected more than 4 percent from its recent high in the last seven days due to fears of aggressive policy tightening by the US Federal Reserve to bring the inflation rate in that country down to its 2 percent target. Other global central banks have adopted the Fed’s hawkish tone, raising worries over economic growth.

However, Harsha Engineers’ strong financials, longstanding relationship with its clientele, healthy market share in the speciality bearing cages market, robust growth prospects and experienced management meant that the company’s shares earned a premium in the grey market.

The company had more than 50 percent market share in the bearing cages market in the organised sector in India and a 6.5 percent share in the global organised brass, steel and polyamide bearings cages market in CY21.

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“The company’s strong fundamentals, competitive advantages like high entry barriers and switching costs, experienced management team and robust growth outlook explains the healthy grey market premium,” said Aayush Agrawal, senior research analyst at Swastika Investmart.

Further, the company is a proxy play on India becoming the global manufacturing hub, he believes. Hence, he advised investors to hold the shares and accumulate on dips.

Harsha Engineers is going to utilise 60 percent of the IPO proceeds to repay debts, capital expenditure towards purchase of machinery, and repairs and renovation of existing production facilities.

The Rs 755-crore IPO comprised a fresh issue of Rs 455 crore of shares by the company and an offer for sale of Rs 300 crore received by its promoters. The price band for the offer was Rs 314-330 per share.

With over 35 years of operating history in the precision bearings cages market, a brightening outlook for the global automobile sector, high degree of focus on manufacturing complex and specialised precision-stamped components, robust revenue and profit growth of 22 percent and 105 percent, respectively, in the last three years, Sandeep Abhange of Anand Rathi believes that Harsha Engineers is well placed to capture growth recovery in the auto/auto ancillary sector.

The auto sector has been on a northward journey for the last six months, with the Nifty Auto index itself climbing nearly 37 percent from its March lows given the expected growth in the space after a subdued environment in the last couple of years.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Sunil Shankar Matkar
first published: Sep 23, 2022 04:42 pm
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