Divgi fizzles after listing

about 12 months ago

After a long gap, there was a new IPO listing today; Divgi Torqtransfer Systems got listed on the BSE today at Rs.600 v/s IPO price of Rs.590. It even rose further to Rs.615 but soon fell below the IPO price to Rs.557 and continues to trade in the red.

Pune based, Divgi manufactures torq transfer systems, gears, components for passenger SUVs (4-wheel drive, all-wheel drive) at 3 plants in Karnataka and Maharashtra, with 4th facility under-construction at Pune, at Rs. 150 cr capex, to be operational by FY24-end.

In our IPO Analysis, we had concluded, “Current secondary market conditions are quite subdued, hence listing may not be very exciting. Also, it may be more prudent to track the company post listing, when more clarity emerges on the potential of new products, especially on the EV side.”

Stating valuation concerns, we had said, “Even after factoring in an optimistic 34-35% profit growth for FY24E, PE multiple on one-year forward basis comes to 24x, which makes the IPO fully-priced. While strong margin is attractive, but high dependence on a single customer and new products in future (DCT and EV transmission) being more mainstream and hence lower margin, versus niche and complex ICE products at present, are some of the concerns.”

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