Divgi TorqTransfer Systems IPO opens today: GMP, key details. Should you subscribe?

Divgi TorqTransfer Systems IPO comprises fresh issue of equity shares worth ₹180 crore and an Offer For Sale (OFS) of 39.34 lakh shares by investors and other selling shareholders. 

Proceeds from the fresh issue will be used towards funding capital expenditure requirements for the purchase of equipment for its manufacturing facilities and general corporate purposes.

As per market observers, Divgi TorqTransfer Systems shares are commanding a premium (GMP) of ₹60 in grey market. The equity shares of the company are expected to list on March 14 on stock exchanges BSE and NSE.

“Underpinned by the sound financials, their business model is supported by a consistent track record of revenue growth and profitability with a CAGR of 21.23% and 28.30% between FY20-22. From a valuation standpoint, based on the FY22 figures, the issue appears to be attractively priced when compared to its listed peers. However, the business has high customer concentration risk (91% of revenues comes from the top 5 customers and 54% is generated from 1 customer). Moreover, overseas sale is dependent upon China and Russia which exposes the company to the risks of geographical concentration. With a favorable future growth potential in the long run, we recommend investors to “Subscribe” to this IPO,” said Parul Sharma, Research Analyst, Samco Securities.

Divgi is an automotive component entity, developing and provide system-level transfer case, torque coupler, and Dual Clutch Automatic Transmission (DCT) solutions. It has three manufacturing and assembling facilities located across India.

“Divgi has delivered impressive growth in both top and bottom line. The company’s steadily growing EBITDA margins, which currently stand at around 28% looks attractive. Divgi TorqTransfer Systems’ IPO has been priced at 36x PE based on post-issue annualised FY23 earnings, which appears to be moderately priced compared to its listed peers. However, it will be interesting to see the kind of response it garners amid the shaky market sentiments,” said Abhay Doshi of UnlistedArena.