Will SRM Contractors IPO shares' opening gains match grey market premium?

Jammu & Kashmir-based SRM Contractors' shares are likely to see strong double-digit gains in the opening on April 3, considering the robust IPO subscription numbers, healthy financial performance, and successful execution of projects in the difficult terrain, experts said.

This will be the first listing in the mainboard segment in the new financial year FY25.

The Rs 130-crore public issue has seen subscription of 86.57 times last week, during March 26-28, on strong support from all kinds of investors. Non-institutional investors (high networth individuals) took the lead, buying 214.94 times the allotted quota. Qualified institutional buyers bid 59.59 times the reserved portion, and retail investors picked 46.97 times the part set aside for them.

In the grey market, the trading premium range for SRM Contractors IPO shares was 45-60 percent, the market observers said. The grey market is an unofficial platform wherein IPO shares can be bought and sold till the listing.

"The company is expected to gain a premium of approximately 60 percent above its subscription price of Rs 210 per share," said Parth Shah, research analyst at StoxBox.

SRM Contractors is an engineering construction and development company engaged primarily in the construction of roads (including bridges), tunnels, slope stabilization works, and other miscellaneous civil construction activities in the Union Territories of Jammu & Kashmir and Ladakh.

"The contractor’s expertise is in operating in difficult terrain and successfully executing projects with varied degrees of complexities with timely execution capacities, financial strength, and the price competitiveness of the company’s bid provides it a competitive edge and enables it to secure contracts from departments of governmental authorities and other entities funded by the government," Parth said.

On the financial front, SRM has recorded a 37 percent CAGR growth in revenue during FY21-FY23, at Rs 300.3 crore in FY23 while net profit grew at a CAGR of 50.5 percent during the same period to Rs 18.7 crore in FY23. The EBITDA (earnings before interest, tax, depreciation and amortisation) increased at a CAGR of 52.6 percent in last three fiscal years.

Net profit for the nine-month period ended September FY24 stood at Rs 21.07 crore on revenue of Rs 234.55 crore. The company already crossed its FY23 profit numbers in nine-month period of FY24.

Based on their annual earnings for the fiscal year ending 2024, the initial public offering appears to be fairly valued, said Amit Goel, co-founder and chief global strategist at Pace 360 who anticipates a listing price in the range of Rs 340-350 per share, which could result in a listing gain of approximately 60 percent over issue price.

The Rs 130.2-crore IPO comprised only a fresh issue by the company. The price band for the issue was Rs 200-210 per share.

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