Grey market activity sees a pick up

Inox Wind IPO trading at a premium of Rs 70 per share

The lacklustre grey market is seeing some action, with shares in the largest initial public offering (IPO) since 2012 being offered at a premium of 22-24 per cent. Sources said shares of wind energy company Inox Wind, whose IPO opened on Wednesday, are in demand at a premium of about Rs 70 compared to the issue price.

“There seems to be interest in the grey market for Inox Wind. The shares are showing a premium of about Rs 75,” said a person dealing in grey market shares.

Two other sources mentioned a premium of Rs 77-80.

Inox Wind has raised Rs 306 crore from anchor investors, according to a statement. The allotment was at the top-end of the IPO price band, between Rs 315 and Rs 325 a share. Experts have cautioned against going by the premium in the grey market alone when dealing with IPOs. Hemang Jani, senior vice-president, Sharekhan, said, “There is hardly any participation in the grey market; a few people can create a misleading impression. Investors should look at the pedigree of the promoter, the business model and the price at which the shares are offered, rather than going by grey market premia.”

"It is an indicator but a rough one. There is no substitute to your own homework. One has seen companies in the recent past which had a premium in the grey market but later did not do very well," said the dealer quoted above.

The company is looking to raise capital at Rs.315-325 per share. This works out to Rs.1009-1019 crore including a Rs.700 crore fresh issue. The company is looking to enhance manufacturing capacities, spending Rs.150 crore for the purpose. Another Rs.300 crore will be used to retire debt. Investment in infrastructure will take Rs.150 crore, while Rs.100 crore is earmarked for general corporate purposes.

The amount raised makes it the largest IPO share sale since Bharti Infratel in 2012.

INOX shares were 9% subscribed according to NSE data on Wednesday evening. It is open till March 20. The company had revenues of Rs.1780 crore in the first nine months of the year. Analysts have been positive on the company.

"Currently it is attractively placed in terms of financial stability as its margins are quite strong and has healthy balance sheet as compared to its closely listed peer Suzlon Energy. On EV/sales, the company is valued at 3.3x (at the upper end of the price band) on the basis of 9MFY2015 annualized numbers. Looking at the strong order book of the company and government focus on the sector, we recommend a Subscribe on the issue," said a 17th March Angel Broking IPO Note authored by Shrenik C. Gujrathi.