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The article presents a comparative analysis of two Initial Public Offerings (IPOs): KRN Heat Exchanger and Diffusion Engineers. Both IPOs closed in late September, but the article focuses on evaluating their prospects for listing day gains in the secondary market for those who missed the initial offering.
A key indicator of market anticipation is the grey market premium (GMP). KRN Heat Exchanger boasts a significantly higher GMP of 123%, suggesting investors expect a substantial price increase on the listing day. In contrast, Diffusion Engineers, with a 35% GMP, signals a more moderate potential for gains. This difference in GMP reflects market sentiment regarding the companies' growth potential and underlying business fundamentals.
However, the article cautions investors about potential risks associated with both IPOs. KRN Heat Exchanger faces the challenge of revenue concentration, with over 70% derived from just 10 key customers. While its profit after tax (PAT) has been increasing, the sustainability of this growth remains a concern. Diffusion Engineers, on the other hand, operates all its manufacturing facilities in a single city, raising concerns about geographic concentration risk.
Despite these risks, both companies have received positive expert assessments. Reliance Securities, in its IPO note, recommends subscribing to KRN Heat Exchanger, highlighting its established market position and strong growth prospects in the HVAC&R sector. Anand Rathi Research, in its analysis of Diffusion Engineers, points to the company's specialization in welding consumables, wear plates, and heavy machinery, along with its plans for service delivery enhancement. Both research firms cite valuation metrics and growth strategies to support their positive recommendations.
The subscription details further underscore investor enthusiasm. KRN Heat Exchanger's IPO was subscribed 213 times, while Diffusion Engineers' was subscribed 50 times. Notably, retail investors showed strong interest in both IPOs, with KRN Heat Exchanger receiving a retail subscription of 97 times and Diffusion Engineers receiving 52 times. This high subscription rate indicates a strong demand for both companies' shares.
In conclusion, while both KRN Heat Exchanger and Diffusion Engineers IPOs hold potential for listing day gains, investors must carefully consider the inherent risks before making an investment decision. The significant GMP of KRN Heat Exchanger suggests substantial potential for gains, but its revenue concentration and growth sustainability require further scrutiny. Diffusion Engineers, with its more moderate GMP, might offer a less volatile but potentially slower growth path. Ultimately, the best investment decision depends on individual risk tolerance and market outlook.
Source: KRN Heat Exchanger IPO Vs Diffusion Engineers IPO – What’s a better listing day bet, key risks