SRM Contractors IPO booked 1.75 times on day 1 so far; all categories fully booked

The initial public offering (IPO) of SRM Contracts saw a strong response from the investors during the first few hours of the bidding process on day one as the issue got fully subscribed. Bidding for the issue, which had kicked-off for bidding on Tuesday, March 26, was active participation from all categories of investors.

The Jammu -based SRM Contractors is selling its shares in the price band of Rs 200-210 apiece. Investors can apply for a minimum of 70 shares and its multiples thereafter. It is looking to raise Rs 130.20 crore via IPO, which is entirely a fresh sale of 62 lakh fresh equity shares.

According to the data, the investors made bids for 76,46,730 equity shares, or 1.76 times, compared to the 43,40,100 equity shares offered for the subscription by 1.10 pm on Tuesday, March 26. The three-day bidding for the issue will conclude on Thursday, March 28.

The allocation for retail investors was subscribed 1.78 times, while the portion reserved for non-institutional investors saw a subscription of 2.02 times. However, the quota set aside for qualified institutional bidders (QIBs) attracted bids for 1.54 times of their reservation as of the same time.

SRM Contractors is a construction and development company primarily engaged in the construction of roads (including bridges), tunnels, slope stabilization works, and other construction activities in Jammu & Kashmir (J&K) and Ladakh. It operates as an EPC contractor and on a unit-price basis for infrastructure projects and subcontracts infrastructure construction projects.

The grey market premium of SRM Contractors has surged amid a strong response on day one. Last heard, the company was commanding a premium of Rs 78-82 in the unofficial market, suggesting a listing pop of about 38-40 per cent for the investors. However, the premium in the grey market stood around Rs 65-70 earlier, when the issue was announced.

Brokerage firms, tracking the issue, are mostly positive on it. They suggest subscribing to the issue on the back of strong hold in the area of operations, rising capital allocation in the region and sound financial track record. However, operational efficiency and dependence on select customers is seen as a challenge for the company.

SRM Contractors' focus on equipment ownership and an in-house integrated model position them for continued success. Its financial performance has been consistently strong, and they currently maintain a healthy order book, indicating promising future prospects. However, some key considerations require investor attention, said Swastika Investmart.

"Geographic concentration in J&K and Ladakh, dependence on a few key clients, and the highly competitive nature of the construction industry present potential challenges. Despite these risks, the IPO valuation appears fair," it said, suggesting investors 'may apply' for the issue after considering their risk tolerance.

SRM Contractors raised Rs 39.06 crore from three anchor investors as it allocated 18,59,900 shares at an issue price of Rs 210 apiece. SRM Contractors has reserved 50 per cent of the net offer for the qualified institutional investors (QIBs), while non-institutional investors (NIIs) will get 15 per cent of shares. Retail investors will get 35 per cent of the net offer.

SRM Contractors reported a net profit of Rs 21.07 crore with a revenue of Rs 242.28 crore for the nine-months ended on December 31, 2023. The company clocked a bottomline of Rs 18.75 crore with a revenue of Rs 300.65 crore for the fiscal year ended on March 31, 2023.

SRM Contractors has emerged as a key player in the infrastructure construction industry in the UT of J&K and Ladakh. Executing several road, tunnel, and slope stabilization projects over 15 years. The company has an experience and has developed technical capabilities to execute projects in hilly/challenging terrain in the region, said Anand Rathi Research.

"At the upper price band, the company is valued at P/E of 25.7 times with a market cap of Rs 481.8 crore post issue of equity shares. We believe that valuations of the company are fairly priced and recommend a 'subscribe for long term' rating to the IPO," it added.

Interactive Financial Services is the sole book running lead manager of the SRM Contractors IPO, while Bigshare Services is the registrar for the issue. The company is likely to be listed on both BSE and NSE with Wednesday, April 3 as the tentative date of listing on the bourses.