The premium on share price of Gland Pharma has rebounded sharply in the grey market ahead of the listing of shares later this week.
Shares were available at a premium of Rs 120 per share in the grey market on November 17, increasing significantly after a Diwali holiday, from Rs 70 quoted on November 13, as per the data available on the IPO Central.
If we look at premium trend of more than two weeks, it indicated that there has been some volatility in the grey market price despite strong equity market scenario and consistent FII inflow.
Gland Pharma had seen a premium of Rs 150 on November 2, which increased up to Rs 170 on November 4, but then gradually started falling up to Rs 25 on Novermber 11. However, it picked up momentum again and rose to Rs 50 on November 12 and then Rs 120 on November 17.
The high valuations and tepid response from investors (barring QIBs) could be some of key reasons for a volatility in grey market premium.
"Uncertainty and lacked confidence from investors as a fact that 74 percent of Gland Pharma is owned by Chinese drug firm Fosun Pharma hurt local demand. Anti-Chinese sentiment due to the border dispute may have played a role in the reticence shown by domestic investors. As far as valuations are concerned even that was bit rich when compared to large pharma players in India and surprisingly we have seen huge rallies in pharma stocks in the past year which now trends low interest in new pharma entries," Prashanth Tapse, AVP Research at Mehta Equities told Moneycontrol.
"On overall basis institutional participation was also subdued compared to some other recent IPOs which is getting reflected in lower grey demand and supply before listing. Hence only high-risk long-term investors may hold rest allotted investors we advise to exit on decent listing," he said.
The pharma sector itself, especially after COVID-19 crisis, witnessed stellar rally given the huge healthcare demand. Nifty Pharma index climbed 83 percent from its March 23's low point.
The company launched its IPO during November 9-11, which was subscribed only 2.06 times. Only qualified institutional buyers helped the issue get subscribed as their reserved portion witnessed subscription of 6.4 times, while the response from retail investors (24 percent) and non-institutional investors (51 percent) was largely muted.
Gland Pharma, which is owned by China's Fosun Pharma, is expected to debut on bourses on November 20. Eligible investors are likely to get shares in their accounts by November 19 after the finalisation of basis of allotment around November 17.
The company raised Rs 6,480 crore via public issue, the second largest IPO after SBI Cards and Payment Services (Rs 10,355 crore) in 2020.
The public issue had comprised a fresh issue of Rs 1,250 crore and an offer for sale of over 3.48 crore shares by promoter and other selling shareholders.
Gland Pharma will utilise net proceeds from its fresh issue for funding incremental working capital requirements, funding capital expenditure requirements and general corporate purposes, while the promoter and selling shareholders received offer for sale money.