Divgi TorqTransfer Systems’ ₹412 crore IPO to open this week; grey market premium at ₹60

• Divgi TorqTransfer Systems is looking to raise ₹412 crore at the upper price band with a fresh issue of ₹180 crore along with an offer for sale (OFS) of up to 39.34 lakh equity shares.
• The company intends to use IPO proceeds towards the purchase of equipment/machinery and for general corporate purposes.
• The shares of the company are currently commanding a grey market premium, or GMP, of ₹60 per share.
• The company’s shares will be allotted to investors on March 9 and will be listed on stock exchanges on March 14.
• The company’s overseas sales are primarily dependent on two countries, China and Russia, which exposes it to risks of concentration.

Pune-based automotive component manufacturer Divgi TorqTransfer Systems is all set to open its initial public offering (IPO) this week on March 1 and will close on March 3. This is the third IPO of 2023, after Radiant Cash Management Services and Sah Polymers.

The price band of the IPO is set at ₹560 - ₹590 per share. The shares of the company are currently commanding a grey market premium, or GMP, of ₹60 per share. GMP is the premium at which IPO shares are traded in an unofficial market before they are listed on the stock exchanges.

The company is looking to raise ₹412 crore at the upper end of the price band with a fresh issue of ₹180 crore along with an offer for sale (OFS) of up to 39.34 lakh equity shares to be sold by promoters and shareholders.

The company’s shares will be allotted to investors on March 9 and will be listed on stock exchanges on March 14.

Divgi TorqTransfer has reserved 75% of the equity shares for qualified institutional bidders, 15% for non-institutional investors and the remaining 10% equity shares for retail investors. The anchor investors can bid for the shares on February 28.

Offer for sale by existing shareholders in the IPO
Source: Divgi TorqTransfer Systems RHP

Funds for equipment
The company intends to use funds from the fresh issue of shares towards the purchase of equipment/machinery at its manufacturing facilities, and for general corporate purposes.

It has three manufacturing and assembly plants at Sirsi in Karnataka, and Shivare and Bhosari near Pune in Maharashtra. A new facility at Shirwal, Maharashtra is expected to be fully operational by FY24.

The company has designed, developed, manufactured and supplied software-embedded electronically controlled transfer cases and torque couplers for customers like Tata Motors, Mahindra & Mahindra and others.

It also manufactures and supplies engineered, turnkey solutions and components to automotive original equipment manufacturers (OEMs) across the globe including those in US, China, Korea and Russia. It says it has the capability to develop and provide transmission systems for electric vehicles.
Source: RHP

China, Russia business concentration a key risk
The company’s overseas sales are primarily dependent on two countries, China and Russia, which exposes it to risks of concentration. Both countries contribute to over 77% of its overall export revenue.

“Loss of all or a substantial portion of sales to any of our customers from these two countries, for any reason (including, due to any materially adverse social, political or economic development, civil disruptions, or changes in the policies of the state government or state or local governments in these countries, occurrence of Covid-19 infection and strict curbs), could have an adverse effect on our business, results of operations, financial condition, cash flows and future business prospects,” said the company in its red herring prospectus.

After sanctions were imposed on Russia as it invaded Ukraine, there has been a reduction in imports from Russia. As a result, the company is unable to sell products to Russian customers.

“There can be no assurance that we will be able to offset the loss of our Russian customers, which may adversely affect our business,” said the company.

Inga Ventures and Equirus Capital are the book running lead managers to the issue.


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