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IRCTC quotes 69-71% premium in grey market, promises strong listing gains

When interest in the primary market picks up, grey market activity picks up as well.

Oct 11, 2019, 01.31 PM IST
Mumbai: Shares of Indian Railway Catering and Tourism Corporation (IRCTC) may list with stellar gains on Monday, given the robust response to its Rs 645 crore initial public offering. The stock quoted a strong 69-71 per cent premium in grey market on Friday.

“This kind of premium is seen after a long time, given the strong subscription. Also, it is unusual for a state-run company to command such huge premium,” said one of the dealers, who did not wish to be named.

When interest in the primary market picks up, grey market activity picks up as well. High net-worth individuals (HNIs) are usually willing to pay a premium to buy shares in firms that are yet to list in order to cash in on the strong listing gains.

Typically, the grey market is driven by HNIs, who put in bids to subscribe to large portions of an IPO, much in excess of the part reserved for such investors. This causes the overall subscription levels for the issue to go up, which, in turn, attracts investors to buy shares in the grey market at a premium.

During the offer period, the issue was subscribed 112 times, logging the best response ever to a state-run IPO.

The portion reserved for non-institutional investors witnessed 354.52 times subscription, while the one reserved for retail investors was subscribed nearly 15 times. Dealers said the shares quoted a premium of around Rs 220-227 per share in the grey market. While the premium was earlier in the Rs 60-64 range when the issue opened, it gradually climbed to Rs 163 and then settled in the Rs 220-227 range, they said.

The issued price for the IPO has been fixed at Rs 320, the upper end of the Rs 315-320 price band. The issue comprised an offer for sale of 2,01,60,000 shares and is a part of the government's divestment process.

Most brokerages had ‘subscribe’ ratings on the IPO.

IRCTC was conferred the status of Mini–Ratna in May 2008. It has also diversified into other businesses, including non-railway catering and services such as e-catering, executive lounges and budget hotel.

Its sales rose 25 per cent year-on-year to Rs 1,899 crore, and its profit grew 23.5 per cent to Rs 272.5 crore in financial year 2019, according to its draft red herring prospectus filed with the regulators in August.

Currently, it operates in four business segments, namely, internet ticketing, catering, packaged drinking water under the “Rail Neer” brand, and travel and tourism.

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