Jyoti CNC may list at 15-18% premium to the IPO price

Jyoti CNC Automation is likely to make a decent start on bourses on January 16, with analysts expecting the stock to list at a 15-18 percent premium to the IPO price.

The listing price is likely to be between Rs 380 and Rs 390 against the issue prices of Rs 331.

The share was commanding a 10-18 percent premium in the grey market, an unofficial ecosystem where shares start trading before the allotment in the IPO and continue till the listing day. Most investors track the grey market premium (GMP) to get an idea of the listing price.

“Currently, the stock is trading in the grey market at a premium of Rs 60, suggesting a listing at Rs 391 per share, translating to a gain of 18 percent over its issue price,” said Shivani Nyati, Head of Wealth, Swastika Investmart Ltd.

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Financial hiccups, including past losses and a negative return on equity, cast a shadow on Jyoti CNC's otherwise attractive profile.

“The hefty P/E ratio of 324.5x, significantly higher than the industry average of 50x, further amplifies the risk factor,” Nyati said.

The issue was subscribed 38.5 times with bids coming in for 67.5 crore shares against the issue size of 1.75 crore shares.

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“Considering the bullish sentiment in the markets touching a fresh lifetime high, along with the overwhelming response received from all sets of investors on the last day of subscription, Jyoti CNC signals a decent listing gain of 15 percent to its issue price,” said Prashanth Tapse, Senior VP Research & Research Analyst, Mehta Equities Ltd.

The listing premium is justified, as it is backed by a strong order book from aerospace and defence, healthy visibility on the top line as well as the bottom line and growing demand in the CNC machine industry.

The primary objective of the IPO is to reduce the debt, which would help the company to come out of interest burdens, leading to an improved bottom line in the coming years, Tapse said.

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Jyoti CNC’s Rs 1,000-crore public offer was entirely a fresh issue of 3.02 crore shares. The price band was fixed at Rs 315-331 a share. Ahead of the IPO, the company raised Rs 447.75 crore from 37 anchor investors.

The company also plans to use the proceeds to finance long-term working capital needs.

“Jyoti CNC could list at Rs 385-390. On a post-issue basis, the IPO is valued at a Price/Sales of 7.4x FY24E revenues on our estimates,” said Saral Seth, VP at Indsec Securities.

The company has a healthy order book of Rs 33.2 billion, offering revenue visibility of three to four years. Aerospace and defence account for 57 percent of the order book, Seth said.

“We thus believe, looking at a strong order book, that valuations are justified owing to strong visibility,” he said.

Read our exclusive note on Jyoti CNC Automation IPO

Jyoti CNC Automation is a manufacturer and supplier of metal-cutting computer numerical control (CNC) machines. Its customers includes ISRO, BrahMos Aerospace, Turkish Aerospace, Tata Advances System, Bharat Forge, Shakti Pumps, Harsha Engineers, Bosch Limited, Festo India, Elgi Rubber and National Fittings. The company has three manufacturing facilities, two in Gujarat’s Rajkot and one in Strasbourg, France.

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