Paradeep Phosphates IPO : Listing expectations and grey market premium

The company had fixed a price band of Rs 39-42 per equity share of a face value of Rs 10 each and the shares were allotted to the investors at the upper end of the price band.

Experts believe that the IPO's price range had been set cautiously at Rs 39–42 per share and in comparison to its peers, the company has a competitive valuation. Thus, it was 1.75 times subscribed on the last day of the issue.

As per IPO watch, which tracks the grey market, the public issue of Paradeep Phosphates could not create much of a stir in the grey market. The highest premium the issue commanded in the grey market was Rs 3 on May 16–19, as per IPO watch. Since then its grey market premium (GMP) has been on a downward trajectory and touched a low of Rs 0.5 on May 24. It has been maintaining the level of Rs 0.5 since then.

GMP is generally used by market observers as a signal about how the IPO will pan out at the time of listing. As per today’s GMP, investors are not likely to make any listing gains tomorrow (May 27) when the stock will list on the stock exchanges.

“The IPO of Paradeep Phosphate, India's second-largest private-sector manufacturer of non-urea fertilisers, has shown a gloomy performance in the grey market with an unchanged premium of just Rs. 0.50 per share for the past four consecutive days,” said Sonam Srivastava, Smallcase Manager and Founder at Wright Research.

“We expect it to list at par due to a bearish trend in the markets, and as investors very well understand that GOI would offload a 19.5 percent stake in this Rs 1,500 crore IPO, of which Rs 500 crore would be as an OFS,” added Srivastava.

The brokerages had earlier given a positive rating to the IPO, recommending investors to subscribe to the IPO both for the listing gains as well as from a long term perspective.

“The stock can list between Rs 45 and Rs 52 which is a reasonable valuation, but as the prices of pre-listed peers fall, they become more appealing”, said Ravi Singhal-Vice Chairman at GCL Securities.

The ensuing volatility in the equity markets due to various macro and non-macro economic factors has shaken the investor confidence to a large extent.

“The overall market sentiment is not supporting the IPO listing these days and keeping in view the current market scenario, Paradeep Phosphates may list around its issue price on the listing day.”, said Ravi Singh Vice President and Head of Research-ShareIndia.

Aditya Shah, Smallcase manager and Chief Investment Officer , JST Investment, concurred and said, "Given the volatile market conditions the  listing will be very tepid and there will not be any significant listing gains on the stock".

The company intends to utilize the net proceeds from the fresh issue to part-finance the acquisition of the manufacturing facility in Goa, repayment/prepayment of part of its borrowings and general corporate purposes.

The company will not get any proceeds from the OFS portion, the proceeds of which will entirely go to the promoters.

The company has been making profits in the past and for FY21, the firm reported a revenue of Rs 5164.73 crore as against Rs 4192.87 crore a year ago. Net profit for the period stood at Rs 223.27 crore versus Rs 193.22 crore last year. For the nine months ended December 2021, the company has already surpassed the revenue numbers it achieved in FY21. The company has recorded revenues of Rs 5,959.7 crore during the first nine months of FY22 and the net profit was also higher at Rs 362.78 crore.

Its net margins for 9MFY22 stood at 6.09 percent as against 4.32 percent in FY21.

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