Muthoot Microfin, Happy Forgings, Azad Engineering IPOs draw attractive premium in grey market

Most investors track the grey market premium (GMP) to get an idea of the listing price

The shares of the three key IPOs this week - Muthoot Microfin, Azad Engineering, and Happy Forgings - have seen their shares trading with impressive premium in the grey market.

Before a company's shares start trading on the bourses, the stocks are listed in the grey market, an unofficial ecosystem where shares start trading much before the allotment and until the listing day. Most investors track the grey market premium (GMP) to get an idea of the listing price.

While Muthoot Microfin is aiming to raise Rs 960 crore through the public issue, Happy Forgings targets Rs 1,008 crore and Azad Engineering hopes to garner Rs 740 crore. Let's take a look at the grey market response to the three public issues.

Muthoot Microfin

The Muthoot Microfin shares were commanding a premium of over 12 percent in the grey market, implying a listing price of Rs 326 against the issue price of Rs 291.

The IPO was subscribed four times with bids for 9.9 crore shares against an issue size of 2.4 crore till the last day of bidding on December 20. Retail investors bought 5.3 times their allotted quota, while HNIs picked up six times. QIBs, on the other hand, subscribed 50 percent of the portion reserved for them.

The issue has garnered a 'subscribe' rating from brokerages, thanks to its stable financial performance, emphasis on rural operations with a robust risk management framework, strong brand recall, and synergies with the Muthoot Pappachan Group.

Domestic brokerage house Anand Rathi suggests that the company has a market leadership with a pan-India presence. At the upper price band, the company is valued at a P/BV of 2.2X with a market cap of Rs 49,608 million after the issue. "We believe that the valuation of the company is fairly priced and recommend a ‘subscribe - long term’ rating to the IPO," the broker said in a note.

Muthoot Microfin will list on the bourses on December 26.

The NBFC provides micro-loans to women borrowers with a focus on rural India and it is the fifth largest NBFC-MFI (micro-finance institution) in terms of gross loan portfolio.

Happy Forgings

The company’s shares were trading at a premium of over 52.24 percent in the grey market, Investorgain data showed. This implies a listing price of Rs 1,294 against the issue price of Rs 850.

The Happy Forgings IPO was subscribed 3.5 times till the second day of bidding on December 20, with bids for 2.92 crore shares against an issue size of 83.65 lakh.

Retail investors so far bought 4.2 times and high net-worth individuals picked up 6.2 times their allotted quota. Qualified institutional buyers booked only 2 percent of the shares set aside for them.

The issue has received a 'subscribe' rating by InCred Equities and Anand Rathi. The rating comes on the back of long-term opportunities in global forgings and machining, expansion of exports, and strong financials. However, EV penetration across heavy commercial vehicle and industrial sectors may adversely affect the company’s business," said analysts at InCred.

Happy Forgings is set to debut on the bourses on December 27.

Azad Engineering

In the grey market, the shares of the company were trading at a GMP of 84 percent, suggesting a debut price of Rs 964, up Rs 444 from the upper end of a price band of Rs 524.

On December 20, when it was launched, the issue was subscribed 59 percent with bids for 59 lakh shares against issue size of 1 crore shares.

The retail portion was booked 84 percent and high net-worth individuals bought 76 percent of the allotted quota, while qualified institutional buyers were yet to pitch in.

Analysts at Canara Bank Securities have put a 'subscribe' tag for listing gains on the issue. While the brokerage house states that Azad has a solid track record, a strong business plan, and management experience that has produced positive results in the past, its valuations at 292.7x P/E appear fully priced as compared to peers.

Azad Engineering shares will be listed on the bourses on December 28.