Divgi TorqTransfer Systems IPO gets 45% anchor allocated

The anchor issue of Divgi TorqTransfer Systems IPO saw a robust response on 28th February 2023 with 45% of the IPO size getting absorbed by the anchors. Out of the 69,85,090 shares on offer, the anchors picked up 31,43,290 shares accounting for 45% of the total IPO size. The anchor placement reporting was made to the BSE late on Tuesday, 28th February 2023. The IPO of Divgi TorqTransfer Systems Ltd opens on 01st March 2023 and in the price band of Rs. 560 to Rs. 590 and will close for subscription on 03rd March 2023 (both days inclusive). The entire anchor allocation was made at the upper price band of Rs 590 (i.e. at the face value of Rs. 5 per share plus share premium of Rs. 585 per share). Let us focus on the anchor allotment portion ahead of the Divgi TorqTransfer Systems Ltd IPO.

Before we go into the details of the actual anchor allotment, a quick word on the process of anchor placement. The anchor placement ahead of an IPO/FPO is different from a pre-IPO placement in that the anchor allocation has a lock-in period of just one month, although under the new rules, part of the anchor portion will be locked in for 3 months. It is just to give confidence to investors that the issue is backed by large established institutions.

However, the anchor investors cannot be allotted shares at a discount to the IPO price. This is explicitly stated in the SEBI revised regulations as under, “As per the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirement) Regulations, 2018, as amended, in case the Offer Price discovered through book building process is higher than the Anchor Investor Allocation Price, then the Anchor investors will be required to pay the difference by the pay-in as specified in the revised CAN.

An anchor investor in an IPO is normally a qualified institutional buyer (QIB) like a foreign portfolio investor or mutual fund or insurance company or a sovereign fund which invests before the IPO is made available to the public as per SEBI regulations. Anchor portion is part of the public issue, so the IPO portion to the public (QIB portion) is reduced to that extent. As initial investors, these anchors make the IPO process more attractive for investors, and instil confidence in them. Anchor investors also largely aid in price discovery of the IPO

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Anchor placement story of Divgi TorqTransfer Systems IPO

On 28th February 2023, Divgi TorqTransfer Systems Ltd completed the bidding for its anchor allocation. There was an enthusiastic response as the anchor investors participated through the process of book building. A total of 31,43,290 shares were allotted to a total of 12 anchor investors. The allocation was done at the upper IPO price band of Rs. 590 which resulted in an overall allocation of Rs185.45 crore. The anchors have already absorbed 45% of the total issue size of Rs. 412.12 crore, which is indicative of the robust institutional demand, although it was predominantly from domestic mutual fund investors.

Listed below is the complete list of 12 anchor investors who together accounted for 100% of the anchor allocation of Divgi TorqTransfer Systems IPO. The entire anchor allocation of Rs. 185.45 crore was spread across these 12 major anchor investors, who absorbed the entire anchor portion among them.

Data Source: BSE Filings

The company is not too active in the grey market despite the issue opening tomorrow. However, the strong anchor appetite is likely to revive interest in the GMP market for the stock. The QIB portion in the IPO will be reduced to the extent of the anchor placement done above. Only the balance amount will be available for QIB allocation as part of the regular IPO.

The general norm is that, in anchor placements, smaller issues find it hard to get FPIs interested while larger issues do not interest mutual funds. Divgi TorqTransfer Systems Ltd has been a mix, getting small but decent response from FPIs but an extremely strong response from the domestic mutual funds and the domestic insurance companies, considering its product positioning in the Indian market. Clearly, the domestic mutual funds have dominated the anchor story here. With strong SIP flows, most equity funds are flush with cash at this point of time and that has helped the MF appetite for anchor allocation in this IPO of Divgi TorqTransfer Systems Ltd. ICICI Prudential, Nippon India, Motilal Oswal and Edelweiss MF were the AMCs to participate in the anchor allotment of Divgi TorqTransfer Systems Ltd in a meaningful way.

Out of the total 31,43,290 shares allotted by way of anchor placement, Divgi TorqTransfer Systems Ltd allotted a total of 24,40,625 shares to 8 domestic mutual fund schemes across 5 AMCs. The mutual fund allocation represents 77.65% of the overall anchor allocation.