Shares of Deepak Builders & Engineers made a tepid debut on the stock market on 28th October, listing at ₹200 per share, which represents a 1.5% discount compared to the issue price of ₹203. This outcome was below expectations, particularly considering the grey market's earlier estimates, which had indicated a 16% premium.
The grey market is an unofficial trading space where shares start changing hands even before the official offer period and continue to trade until the listing date.
Grey market premium fails to translate to the actual listing price
The weak listing of Deepak Builders & Engineers shares disappointed investors who had anticipated a stronger start based on the grey market premium. The shares had been trading at a 16% premium in the grey market, raising expectations of a favourable listing. However, the listing at a lower price underscores the risks involved when investors choose to invest in IPO shares based on grey market signals.
Robust demand despite market headwinds
Despite a challenging equity market environment, the initial share sale of Deepak Builders & Engineers India saw robust demand, garnering bids for 37.24 crore equity shares, equating to 41.54 times the offer size of 89.67 lakh shares. The strong subscription numbers indicate investor confidence in the company's future potential, even if the initial listing price did not meet expectations.
Non-institutional investors, especially high-net-worth individuals (HNIs), led the demand, with subscriptions reaching 82.47 times their allotted quota. Retail investors showed significant interest as well, bidding for 39.79 times their reserved portion. Qualified institutional buyers demonstrated a strong appetite, subscribing to 13.91 times their allocation. This high level of interest in the IPO suggests that many still see opportunities to invest in IPO stocks like Deepak Builders & Engineers.
Company background and utilisation of IPO proceeds
Founded in 2017, Deepak Builders & Engineers India Limited is a Ludhiana-based company specialising in constructing various types of buildings, including administrative, institutional, industrial, and residential structures, as well as hospitals and stadiums. The company has a reputation for executing turnkey projects, covering aspects such as architecture, civil engineering, mechanical, electrical, and plumbing (MEP), firefighting, IT systems, medical gas pipelines, and landscaping.
The company raised ₹78 crore from anchor investors on 18th October. It plans to utilise ₹142 crore of the net fresh issue proceeds to repay existing debt and meet working capital requirements. The remaining funds will be used for general corporate purposes. The IPO's objectives align with the company's growth strategy and provide an opportunity for investors looking to invest in IPO offerings with strong potential in the infrastructure sector.
Investor sentiment and future outlook
While the initial listing at a discount may be seen as a setback, the strong subscription rates demonstrate underlying confidence in Deepak Builders & Engineers. For investors, the company's ambitious plans to reduce debt and improve liquidity through the IPO proceeds could bolster its financial health, potentially making it a more attractive stock to hold in the long term. Those looking to invest in IPO offerings should weigh the risks and rewards carefully, considering both the immediate listing performance and the company's strategic plans.
Conclusion
The 1.5% discount at which Deepak Builders & Engineers shares are listed may deter some investors. However, the strong demand during the IPO and the company's solid background in construction projects could still make it a worthwhile investment. The fact that the shares fell short of grey market expectations serves as a reminder of the unpredictable nature of IPO listings. However, with plans to use IPO funds to strengthen the company's balance sheet, this stock may offer potential value to those looking to invest in IPO shares for long-term gains.
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