SRM Contractors IPO subscribed 8.75 times on day 2 so far; HNI quota booked 20x

The initial public offering (IPO) of SRM Contracts continued to witness a strong response from the investors during the second day of the bidding process, particularly retail and HNI investors. The issue, which had opened for bidding on Tuesday, March 26, 2024, was overall subscribed more than 3.5 times on day one.

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 3,76,70,500 equity shares, or 8.68 times, compared to the 43,40,100 equity shares offered for the subscription by 12.40 pm on Wednesday, March 27. The three-day bidding for the issue will conclude on Thursday, March 28.

The allocation for retail investors was subscribed 8.04 times, while the portion reserved for non-institutional investors saw a subscription of 19.59 times. However, the quota set aside for qualified institutional bidders (QIBs) attracted bids for 1.61 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 is bringing the issue at a P/E multiple of 17 times on an annualized 9 months FY24 PAT basis. It has a proven track record of efficient execution of roads, tunnels and slope stabilisation works in the difficult terrain of union territory of Jammu and Kashmir. The company has a business model of selecting and clustering of its projects in J&K and Ladakh, said Hem Securities.

"Its continuous focus on equipment ownership along with strong financial performance in the last three financial years. Company has an in-house integrated mode along with experienced promoters with a strong management team. Looking after all above we recommend 'subscribe' on issue," it added.

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, with impressive financial growth, boasts a significant order book of Rs 713 crore as of December 2023, ensuring medium to long-term growth. MoRTH has substantially increased its budget to Rs 2,70,000 crore for FY 2024, signaling a strong commitment to infrastructure development, said GEPL Capital.

"Jammu & Kashmir and Ladakh are focal points for upcoming tunnel and road projects, and SRM Contractors Limited plays a pivotal role in executing these projects, leveraging its expertise in challenging terrains. Hence, we recommend 'subscribe' rating to the issue," 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.