Why Mazagon Dock's IPO has an edge over UTI AMC

The initial public offering (IPO) of Mazagaon Dock Shipbuilders, state-owned defence company, has received strong response from retail investors as compared to UTI Asset Management's public offer.

The Rs 444-crore IPO of Mazagaon Dock was subscribed 5.5 times, so far on second day of bidding, led by retail investors as their quota was subscribed 11.67 times. In contrast, the Rs 2,160-crore IPO of UTI AMC has been subscribed only 57 per cent on the second day of bidding. The response from retail investors was tepid as the portion set aside for them was subscribed 92 per cent.

Compared to UTI AMC' price band of Rs 552-554 per share, Mazagaon Dock shares are available at much cheaper rate of Rs 135-145 apiece. This means that investors are more likely to gain from listing of the stock.

Besides, Mazagaon Dock Shipbuilders is a defence sector entity controlled by government, which has strong orderbook, attractive valuations, healthy return on equity (RoE) and highest dividend yield. According to market analysts, defence sector is more likely to sustain in the near future as the government aims to make this sector self reliance.

While UTI AMC is the country's second largest asset management company in terms of total AUM, its high-cost structure is a concern for investors. The company has high operating costs compared to its peers which affect its profitability.

Mazagon Dock Shipbuilders is the country's leading defence entity which is engaged in constructing and repairing warships and submarines for Ministry of Defence  and other types of vessels i.e. cargo ships, multipurpose support vessels, barges and border outposts, tugs, dredgers, water tankers, etc. for commercial clients.

The government, which owns 100 per cent stake in the company, plans to divest 15.17 percent stake via the public issue. The IPO comprises 3,05,99,017 shares through an offer for sale (OFS). The issue will close on October 1.In a move to divest the stake held by its five shareholders, the IPO of UTI AMC opened for subscription on September 29 and will end on October 1. The IPO is an offer for sale of 3,89,87,081 equity shares, or 30.75 per cent stake by the company's existing investors to raise Rs 2,152-2,160 crore. The IPO is an offer for sale of 3,89,87,081 equity shares, or 30.75 per cent stake by the company's existing investors to raise Rs 2,152-2,160 crore.

Also Read: Mazagon Dock Shipbuilders IPO subscribed two times on day 1, retail portion 5.6 times

Also Read: UTI AMC IPO in progress: All you need to know about the share sale