Uniparts India GMP drops sharply: Should you still subscribe to the IPO?

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Uniparts India’s Rs 835.6 crore IPO will open for subscription to investors today. Ahead of its listing, the global manufacturer of engineered systems and solutions allotted 43,44,582 shares to 21 anchor investors, including nine schemes of five mutual funds, aggregating to Rs 250.69 crore.

Anchors included Nomura, Morgan Stanley, BNP Paribas, IMCO, Carmignac, Abacus, Theleme, HDFC MF, Aditya Birla Sun Life and Invesco.

Last heard, Uniparts was commanding a gray market premium (GMP) of Rs 71. It was below GMP level of Rs 80 on Nov 29, 137-140 odd levels on Nov 28. It was still a 12 percent premium. The upper limit of the price band is Rs 548-577.

Some brokerage firms have given subscribe rating to the issue.

At the higher price band, the IPO is seeking an EV/Sales multiple of 2.2x, which appears to be in line with the peer average. Choice Broking said Uniparts has better profitability and return ratios than peer averages.

“Considering the global policy of large-scale infrastructure capital expenditure by major economies, improving mechanization in agriculture and the global bias towards “China plus” strategy, we feel the company has the potential to sell its products at higher rates.” There are sufficient levers to expand the business. Thus, we assign a “Subscribe” rating to the issue,” it said.

Nirmal Bang Securities said that Uniparts has demonstrated its scalability and execution with a topline growth of 12 per cent CAGR in FY2017-22 and enhanced revenue of Rs 1,227 crore in FY22. The company has reduced debt from Rs 330 crore in FY19 to Rs 83 crore by June 2022, which has helped Uniparts improve its bottom line performance.

“A global player of engineered systems and components for the off-highway market in agriculture, CFM and aftermarket, is projected to increase its market share from the current 8 percent in the over 70 HP segment. It is being offered at 15.6 times FY20 Earnings considering peer valuations and future growth opportunities in 3-PL and PMP industry. We recommend to subscribe to the issue.

Religare Securities, Hem Securities and KRChoksey Shares & Securities have also subscribed to the issue.

Compared to listed peers, Uniparts is significantly smaller in size in terms of revenue but has better ROCE and ROE profiles as well as lower net debt/Ebitda levels, KRChoksey Shares & Securities said.

“Considering the upper limit of the price band and FY22 EPS, Uniparts IPO is valued at a P/E multiple of 15.6 times. This is on the lower end as compared to the multiples at which the listed peers are trading. Considering the growth opportunities, Uniparts’ differentiated offering, expansion of addressable market and focus on value addition, we recommend rating Uniparts India Limited IPO ‘Subscribe’.”

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