On October 4, 2024, Forge Auto International made its stock market debut on the NSE SME platform, with its shares listing at Rs 113, representing a modest 5% premium over the IPO issue price of Rs 108 per share. Despite the relatively muted start, Forge Auto’s IPO managed to generate significant attention due to the company's robust engineering background and its contributions to both the auto and non-auto sectors.

Company Background and IPO Details

Forge Auto International is a forging and manufacturing company specializing in producing safety-critical, forged, and precision-machined components. Its product portfolio includes a wide variety of components such as big rings, small rings, ball studs, gear blanks with broach, and stub axle assemblies. These components serve multiple industries, including automobiles, tractors, and railways, as well as non-auto sectors like agriculture and hydraulics.

The IPO opened for subscription on September 26, 2024, and closed on September 30, 2024. The issue was entirely a Fresh Issue of 28.80 lakh shares, amounting to a total raise of ₹31.10 crores. Investors subscribed heavily to the issue, with a subscription rate of 45.87 times as of the last day.

HEM Securities Limited served as the book-running lead manager, and Bigshare Services Private Limited was the registrar for the issue. Hem Finlease Private Limited acted as the sole Market Maker.

IPO Subscription Details and Anchor Investors

The subscription figures for the Forge Auto International IPO were impressive, with a total subscription rate of 45.87 times. The subscription was divided across various investor categories:

Qualified Institutional Buyers (QIBs): 8.83 times

Non-Institutional Investors (NIIs): 12.34 times

Retail Individual Investors (RIIs): 25.7 times

In addition, Forge Auto International raised ₹8.83 crores from Anchor Investors by allocating 8,19,400 shares at the upper price band of Rs 108 per share. Anchor investors typically set the stage for a successful IPO by showing early interest in the company's shares.

Share Price Band and Minimum Investment

The price band for the Forge Auto IPO was set between ₹102 and ₹108 per equity share. The minimum lot size was 1,200 shares, meaning that retail investors needed to invest a minimum of ₹1,29,600, while High-Net-Worth Individuals (HNIs) needed to invest in at least two lots (2,400 shares), amounting to ₹2,59,200.

Financial Performance and Industry Outlook

Over the past few years, Forge Auto International has demonstrated steady growth in its financial performance. In Fiscal Year 2024, the company reported revenues of ₹18,157.30 lakhs, up from ₹17,764.43 lakhs in FY 2023. Its EBITDA for FY 2024 stood at ₹1,371.77 lakhs, while Profit After Tax (PAT) was ₹668.88 lakhs. The company's financial metrics show continued improvement over the previous years, signaling solid financial health.

The company’s Return on Capital Employed (ROCE) for FY24 is 17.60%, while the Return on Average Equity (RoAE) stands at 35.76%. These numbers reflect the company’s strong ability to generate returns on its investments and equity, making it an attractive investment in the long term.

Market Sentiment and Grey Market Premium

Interestingly, the Grey Market Premium (GMP) for Forge Auto International was zero leading up to the listing, suggesting that market expectations for immediate listing gains were modest. The Grey Market is an unofficial ecosystem where shares trade before the IPO listing, often indicating potential listing performance. In this case, the lack of a premium aligned with the modest 5% listing gain on debut.

Objectives of the IPO

The proceeds from the Forge Auto IPO are earmarked for several key purposes:

Working Capital Requirements – ₹19 crores will be used to strengthen the company's liquidity.

Repayment of Borrowings – ₹5 crores will be allocated to repay certain loans.

General Corporate Purposes – The remaining funds will be used to cover miscellaneous expenses that contribute to the growth and expansion of Forge Auto International.

Valuation and Recommendations

Forge Auto International’s IPO pricing has been deemed fair based on the company’s financial performance. The company is issuing shares at a pre-issue EPS of ₹10.21 and a post-issue EPS of ₹6.12. The pre-issue P/E ratio is 10.57x, while the post-issue P/E ratio stands at 17.64x, which is lower than the industry’s average P/E ratio of 48.97x.

While the IPO pricing is reasonable, the lack of Grey Market Premium and muted listing gains suggest that this may not be the best choice for those seeking short-term gains. However, Forge Auto International could still be a solid long-term investment given its consistent financial growth and established presence in both auto and non-auto sectors.

Conclusion

In summary, Forge Auto International’s stock market debut at a 5% premium over its issue price reflects cautious optimism in the market. The company's strong financials, established reputation, and strategic focus on key industry sectors make it an attractive candidate for long-term investment. Investors should consider the company’s growth potential, but those seeking quick listing gains may want to look elsewhere.

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