Nandan Nilekani-backed Divgi TorqTransfer Systems IPO opens for subscription, GMP rises; should you apply-

Nandan Nilekani-backed Divgi TorqTransfer Systems IPO opens for subscription, GMP rises; should you apply?

Divgi TorqTransfer Systems IPO opened for subscription on Wednesday and will conclude on Friday, 3 March. The price band for the IPO has been fixed at Rs 560-590 a share. Divgi TorqTransfer Systems IPO comprises a fresh issue of shares worth Rs 180 crore and a sale of 39.3 lakh shares by promoters and shareholders, including by Oman India Joint Investment Fund and Nandan Nilekani (Family Trust).

Ahead of the IPO, the company raised Rs 185 crore from anchor investors. At the upper end of the price band, the public issue is expected to fetch Rs 412 crore. Divgi TorqTransfer Systems shares were commanding a grey market premium (GMP) of Rs 68 today. The shares of the company are expected to list on the stock exchanges BSE and NSE on Tuesday, 14 March 2023.

Should you subscribe to Divgi TorqTransfer Systems IPO?Choice Broking: Subscribe with caution

“At a higher price band, DTTSL is demanding a P/E multiple of 39.1x (to its FY22 EPS of Rs. 15.1), which seems to be fully priced with respect to its performance and peers. Being the leading player in supplying transfer case systems to OEMs in India and also diversifying its product and business, the company is seeking opportunities to expand its businesses with the help of its strategy.

“The Company’s top and bottom line has been increasing with a decent growth rate in recent years with the help of its strong and established relationships with several marquee domestic and global OEMs. They have created a niche place in the segment with a variety of products for OEMs. However, considering the growth outlook and the ability to expand its profitability with the growing competition, we assign a “Subscribe with Caution” rating for the issue.”

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“Overall, the company’s strength lies in its in-house software development capabilities, providing them an edge over other competitive players in the field. Going forward, the company’s approach to focus on its research & development (R&D) in response to serving emerging trends and improving its market share by catering to new customers bodes well with its growth strategy plan. On the upper end of the price band, the issue is valued at a P/E of 35.2x based on FY2022 earnings which is one of the lowest compared to the listed peer group. We, therefore, recommend a “SUBSCRIBE” rating for the long term.”

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“We assign SUBSCRIBE for long term rating on DTS given that our bet in on future growth trajectory at the company as trailing valuations discount much of its healthy financial profile. We like DTS for its technical prowess in transmission space & incremental revenue streams coming on broad going forward in EV transmission as well as Dual Clutch transmission space.”

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“The company has an established track record of growth and financial performance. Divgi-TTS witnessed ROE and ROCE of 13.57% and 29.47% in FY2022, respectively. The company is virtually debt free as of September 2022. On the valuation front, the company is available at 35.20x PE for FY22 which is quite attractive to the industry peers. We recommend to Subscribe IPO for listing as well as long term.”

(The recommendations in this story are by the respective research analysts and brokerage firms. FinancialExpress.com does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)