Days ahead of IPO, Rossari Biotech’s unlisted shares demanding 35% premium in grey market

New Delhi: As Rossari Biotech gears up to launch its initial public offering (IPO) on Monday, unlisted shares of the company are demanding up to 30-35 per cent premium over the IPO price in grey market or unofficial market for trading in unlisted shares.

The company has fixed the price band of the issue at Rs 423-425. Grey market traders are expecting the issue to list at a hefty premium.

In the Pre-IPO market, premium on the shares shot up to Rs 140 on Wednesday, July 8, from Rs 20 on Monday, July 6. Traders are expecting the premium to rise further till issue closes for subscription.

Narottam Dharawat of Dharawat Securities, a Mumbai based firm that deals in unlisted shares, said the premium is rising as the IPO is inching closer. “It is likely to move northward in the next few days,” he said.

It is the first IPO after the Covid-19 outbreak sent the equity market haywire and stalled companies’ plans to raise fresh capital. Rossari had held up the issue in March amid the pandemic scare.

“This market is for investors, who wish to get desired quantity of shares without risking allotment due to oversubscription. Affluent investors usually opt for this route prior to listing,” said Dharawat.

Dealers of the unlisted market prima facie fancy the stock.

“As action resumes in the primary market, the bullish sentiment in the broader market, improved risk appetite, increased liquidity and inundating Robinhood investors may take the charge of the issue,” said Sunil Chandak of Gennext Investrade.

After burning their fingers in the SBI Cards issue, HNIs and ultra-HNI are expected to turn cautious about going gung ho on this issue. SBI Cards was the last IPO prior to the Covid-19 fiasco.

Chandak says HNI participation in the issue will depend on funding from financial institutions and subscription by levels in retail and non-institutional quota.

Rossari Biotech manufactures specialty chemicals and provides customised solutions to the apparel, animal & poultry feed and FMCG industries by offering a diversified product portfolio. It operates in 18 countries, including India, Bangladesh, Vietnam and Mauritius.

The company generated total revenues of Rs 603.80 crore and a net profit after tax of Rs 65.25 crore for last financial year. Over the last three years, it has managed to grow revenues at a compounded annual growth rate of 41.65 per cent and profit at a CAGR of 60.27 per cent.

A few dealers find the grey market premium unjustified, considering the Rs 2 face value of the stock. One must not compare this issue with SBI Cards, they say.

Sandip Ginodia of Abhishek Securities said this premium translates to a price of Rs 2,750 at a face value of Rs 10, which is quite expensive. “There is not much value in the scrip. There are better options available in both, listed and unlisted markets."