India's largest defence company Mazagon Dock Shipbuilders' trading premium has reduced by more than 25 percent in the grey market despite strong equity market trend.
The current grey market premium is in the range of Rs 100-110 per share against Rs 130-145 per share earlier (during issue opening), people privy to the IPO development told Moneycontrol.
That means it is available at Rs 245-255 per share in the grey market against IPO price of Rs 145 per share, which is still a significant premium given the company's strong orderbook, healthy return on equity with highest dividend yield.
Mazagon Dock is going to list its equity shares on bourses on October 12, 2020.
"The fall in the premiums of all other IPO stocks may have affected the premium of Mazagon Dock. In addition to it, recent IPOs have seen good amount of profit-booking on the day of listing and most of the market participants are interested in the listing gains. This might be another cause of slashed premium of Mazagon Dock as many investors might want to buy from secondary market after the stock corrects itself post profit-booking," Gaurav Garg, Head of Research at CapitalVia Global Research told Moneycontrol.
The Rs 444-crore IPO of Mazagon Dock Shipbuilders, the only shipyard to build destroyers and conventional submarines to be used by the Indian Navy with a maximum shipbuilding and submarine capacity of 40,000 DW, was subscribed around 157.4 times during September 29-October 1.
Mazagon Dock Shipbuilders IPO allotment finalised: Check the status in five simple steps
"The company has higher grey market premium mainly due to lower valuation compared to its peer like Garden Reach Shipbuilders (FY20 earnings). Further, Mazagon Dock has a healthy RoE of around 16 percent coupled with highest dividend yield (7.4 percent) and higher cash on balance sheet among its peers," Amarjeet Maurya - AVP - Mid Caps at Angel Broking told Moneycontrol.
Moreover, higher order book around Rs 54,000 crore and government's new initiative to promote defense sector created overall positive sentiment on IPO, he said.
Mazagon Dock Shipbuilders is primarily engaged in constructing and repairing warships and submarines and other types of vessels i.e. cargo ships, multipurpose support vessels, barges and border outposts, tugs, dredgers, water tankers, etc. for commercial clients.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.