Divgi TorqTransfer Systems IPO Analysis – Is It Worth Your Investment?
Divgi TorqTransfer Systems (DTTS) is a Pune-based company. It is one of the leading players supplying transfer case systems to automotive OEMs in India and the largest supplier of transfer case systems to passenger vehicle manufacturers in India. The company has filed for an initial public offering (IPO), which is set to open for subscription on March 1st, 2023. DTTS aims to raise around Rs. 500 crores through the IPO, which will consist of a fresh issue of shares and an offer for sale by its existing shareholders. In this article, we will take a closer look at Divgi TorqTransfer Systems IPO, analyzing the company’s financials and growth prospects and determine whether investors should subscribe to the IPO.
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Divgi TorqTransfer Systems IPO – Issue Details
|IPO Opening Date||01-Mar-23|
|IPO Closing Date||03-Mar-23|
|IPO Listing Date||14-Mar-23|
|Issue Type||Book Built Issue IPO|
|Face Value||Rs 5 per equity share|
|IPO Price band||Rs 560 to Rs 590 per equity share|
|Lot Size||25 Shares|
|Min Order Quantity||25 Shares|
|Listing at||BSE and NSE|
|Total Issue Size||Rs. 412 Crores|
|Fresh issue||Rs. 180 Crores|
|OFS||Rs. 232 Crores|
|QIB shares offered||Not less than 75% of the offer|
|NII/HNI shares offered||Not more than 15% of the offer|
|Retail shares offered||Not more than 10% of the offer|
|Company Promoters||Jitendra Bhaskar Divgi, Hirendra Bhaskar Divgi and Divgi Holdings Private Limited are the promoters of the company|
Divgi TorqTransfer Systems Prospectus
Divgi TorqTransfer Systems – A Deep Dive into the Company’s Business Model and Financials
The company is amongst the very few suppliers in India who have the capability to develop and provide system level transfer case, torque coupler and DCT solutions.
They are one of the leading players supplying transfer case systems to automotive OEMs in India and the largest supplier of transfer case systems to passenger vehicle manufacturers in India.
They are also the only player manufacturing and exporting transfer cases to global OEMs from India, and the only manufacturer of torque couplers in India. They also have the capability to develop and provide transmission systems for electric vehicles. They are in the process of designing and developing prototypes of transmission systems for EVs pursuant to receipt of a business award for this purpose. As of the date of this Red Herring Prospectus, they have been awarded a contract for the supply of EV transmission systems for one of the leading providers of EVs in India. However, supply pursuant to this contract has not started as on the date of this Red Herring Prospectus.
They manufacture and supply a variety of products under the broad categories of
(i) Torque transfer systems (which includes four-wheel-drive and all-wheel-drive products)
(ii) Synchronizer systems for manual transmissions and DCT and
(iii) Components for the above-mentioned product categories for torque transfer systems and synchronizer systems in manual transmission, DCT, and EVs.
They have also developed
(i) Transmission systems for EVs
(ii) DCT systems and
(iii) Rear wheel drive manual transmissions.
They are one of the few companies who serve both as a systems level solution provider as well as component kit supplier to global OEMs and Tier I transmission systems suppliers.
They have an in-house software development capability which helps us in providing system level solutions offering software that controls the vehicle dynamics.
Financial Performance of Divgi TorqTransfer Systems
|Financial Year ending / Period ending (Amt in Crores)|
|Profit After Tax||28.0||38.0||46.2||25.7|
What are the Objects of the Offer?
Company objects of the IPO include both Offer for sale and fresh issue.
Offer for Sale Rs 232 Crores – The IPO proceeds would go to selling shareholders and company would not get anything.
Fresh Issue of Rs 180 Crores – These funds would be used for the following:
- Funding capital expenditure requirements for the purchase of equipment/machineries of our manufacturing facilities;
- General corporate purposes.
Divgi TorqTransfer Systems IPO Valuation Analysis
Its IPO price band is Rs 560 to Rs 590.
P/E Ratio is 35x – Based on CY22 EPS of Rs 16.76.
P/E Ratio is 40x – Based on last 3 years weighted EPS of Rs 14.68
P/E Ratio is 32x – Based on 6 months ended Sep-22 EPS of Rs 9.32 and if we annualise it.
Based on this, company is asking IPO Price in the P/E ratio of 32x to 40x. Its listed peers like ZF Commercial Vehicle is trading at P/E 124x (Highest) and Endurance Technologies trading at 44x (Lowest). Hence, we can assume that the IPO Price is attractively priced..
Top Reasons Why Investors Should Consider the Divgi TorqTransfer Systems IPO
- Strong financial track record with consistent revenue and profit growth.
- Niche market with high entry barriers and strong demand for its products.
- Diversified customer base with over 54% revenue coming from exports.
- Experienced management team with a focus on R&D and new product development.
- Plans for growth and capacity expansion funded by IPO proceeds.
- Healthy balance sheet with low debt-to-equity ratio and high return on equity.
Risk Factors in Divgi TorqTransfer Systems IPO
On the risks side:
- Dependency on a few large customers for a significant portion of revenue.
- Exposure to risks such as currency fluctuations, changes in regulations, and competition.
- Limited diversification within the power transmission systems market.
- Limited visibility into the long-term impact of the COVID-19 pandemic on the company’s operations and financial performance.
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Divgi TorqTransfer Systems IPO Review – Is It Worth Your Investment?
Divgi TorqTransfer Systems is the leading players supplying transfer case systems to automotive OEMs in India and the largest supplier of transfer case systems to passenger vehicle manufacturers in India.
Positive factors include a strong financial track record, niche market with high entry barriers, diversified customer base, and experienced management team. Its IPO price is also fairly priced.
Negative factors include dependency on a few large customers, exposure to risks such as currency fluctuations and competition, limited diversification, and limited visibility into the long-term due to the impact of the COVID-19 pandemic.
Considering all these factors, investors can invest in this IPO with medium to long term perspective.
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Kindly suggest about sme ipo
Ashish, SME IPOs are very high risk, hence we stopped covering the review for them