Divgi TorqTransfer Systems to float Rs 412-crore public issue today

IPO

Automotive component maker Divgi TorqTransfer Systems will become the first company to launch its initial public offering (IPO) in 2023 when the issue opens for subscription on March 1.

Here are 10 key things to know before subscribing to the public offer:

1) IPO Dates

The offer will open for subscription on March 1 and the last day for bidding will be March 3. The anchor portion, a part of qualified institutional buyers, will open for a day on February 28.

2) Price Band

The price band for the offer has been fixed at Rs 560-590 a share.

3) Offer Size

Divgi is planning to mobilise more than Rs 412 crore via the public issue, which comprises a fresh issuance of shares worth Rs 180 crore and an offer for sale (OFS) of 39.34 lakh shares by holders.

Oman India Joint Investment Fund II, NRJN Family Trust, Bharat Bhalchandra Divgi, Sanjay Bhalchandra Divgi, Ashish Anant Divgi, Arun Ramdas Idgunji, and Kishore Mangesh Kalbag are the selling shareholders.

4) Objects of Offer

The fresh issue proceeds will be used to purchase equipment besides general corporate purposes, while the offer for sale money will go to the selling shareholders.

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5) Lot Size

Investors can bid for a minimum of 25 shares and in multiples of 25 shares thereafter. Retail investors can make a minimum investment of Rs 14,750 for a single lot and a maximum of Rs 1,91,750 for 13 lots, at the higher end of the price band.

The company has reserved 75 percent of the issue size for qualified institutional buyers, 15 percent for non-institutional investors (high networth individuals, and the remaining 10 percent for retail investors.

6) Company Profile

Divgi TorqTransfer develops and provides system-level transfer case, torque coupler and DCT solutions, to automotive original equipment manufacturers through its three manufacturing and assembling facilities in India.

The company claims to be the largest supplier of transfer case systems to passenger vehicle manufacturers, the only player manufacturing and exporting transfer cases to global OEMs from India and the only manufacturer of torque couplers in India, as per CRISIL report.

It is in the process of designing and developing prototypes of transmission systems for electric vehicles (EVs). It has already received a contract for the supply of EV transmission systems but has not started any supply yet. The company actively collaborates with Europe's transmission engineering consulting firms like FEV and Hofer.

The company has a client base of global OEMs and transmission systems suppliers. Its top five customers contributed more than 90 percent to its revenue in the first half of FY23 and FY22.

7) Financials

Divgi has recorded a profit of Rs 46.15 crore for the quarter ended March FY22, a growth of 21.3 percent over the previous year, backed by a good topline and operating numbers.

Revenue from operations for the year at Rs 234 crore was up 25.3 percent from the previous financial year, including Rs 213.4 crore of income from its top five customers.

On the operating front, earnings before interest, tax, depreciation and amortisation for the year increased by 26.4 percent to Rs 65.6 crore with a margin expansion of 25 bps at 28.06 percent from FY21.

For the six-month period ended September FY23, profit came in at Rs 25.66 crore on revenue of Rs 133.72 crore.

The company has significantly reduced its borrowings to Rs 0.26 crore in FY21 from Rs 50.41 crore in FY20. At the end of September FY23, it was at Rs 0.5 crore.

8) Promoters and Management

The shareholding of promoters and the promoter group stands at 67.18 percent and the rest is held by non-promoters. Divgi Holdings with a 57.32 percent stake, Jitendra Bhaskar Divgi (2.65 percent), and Hirendra Bhaskar Divgi (2.66 percent stake) are the promoters of the company.

Oman India Joint Investment Fund II with a 21.71 percent stake and NRJN Family Trust with 8.70 percent are the major shareholders in the company.

Praveen Purushottam Kadle is the Chairman and Independent Director on the board, while Jitendra Divgi is the Managing Director, and Hirendra Divgi the Whole Time Director.

Sanjay Bhalchandra Divgi, Bharat Bhalchandra Divgi, Pradip Vasant Dubhashi, Ajay Bhaskar Limaye, Pundalik Dinkar Kudva, and Geeta Prafullachandra Tolia are independent directors.

9) Risks Factors

a) The business largely depends upon the company's top five customers, and the loss of such customers or a significant reduction in purchases by them will have a material adverse impact on the business.

b) Its business could be adversely affected by volatility in the price or availability of raw materials and components.

c) The company depends on some third-party suppliers for certain key components and raw materials used for manufacturing systems and components.

d) The company is exposed to foreign currency exchange rate fluctuations, which may adversely affect results of operations and cause quarterly results to fluctuate significantly.

10) Allotment and listing dates

The IPO share allotment will be finalised by March 9, 2023. Refunds will be credited to the bank accounts of unsuccessful investors by March 10 and equity shares will be transferred to the demat accounts of eligible investors by March 11.

The company will make its debut on the BSE and NSE on March 14, as per the red herring prospectus.

Inga Ventures, and Equirus Capital are the merchant bankers to the issue, while Link Intime India is the registrar to the offer.