Newmalayalam Steel IPO Faces a Challenging Listing Day

The Newmalayalam Steel IPO, which had drawn strong investor interest, listed flat on the NSE SME at ₹90 per share. Despite being priced at the higher end of its IPO band, the share quickly fell by 5%, hitting the lower circuit on its listing day. This disappointing debut raised concerns among investors, especially those hoping for listing gains.

Flat Listing with Immediate Decline
The IPO, which had received over 50 times subscription, was offered in the price range of ₹85-₹90 per share. Investors who had subscribed to the IPO were allocated shares with the lot size of 1,600 shares, amounting to a total investment of ₹1,44,000. However, those investors were unable to make any immediate gains on the listing day, as the shares opened flat at ₹90 and promptly hit the lower circuit limit of 5%.

Grey Market Premium Misses Expectations
Leading up to the listing, Newmalayalam Steel's IPO was expected to have a Grey Market Premium (GMP) of ₹14, which implied a potential listing price of ₹95. However, the actual performance of the stock did not align with this expectation. While the GMP trend indicated a 15.23% potential gain, the market’s reaction on the listing day revealed no gains for the IPO investors. The GMP, though widely watched, often fails to accurately predict listing day outcomes due to unregulated trading practices.

Subscription and Market Demand
The subscription period for the Newmalayalam Steel IPO, which ran from December 19 to December 23, 2024, saw overwhelming demand, with the issue subscribed over 48 times by the final day. Despite this strong demand, the listing performance paints a different picture, showing that market sentiment was not in favor on the debut day. This has left some investors questioning whether the price was justified, especially considering the company’s financial metrics.

About Newmalayalam Steel and the DEMAC Group
Newmalayalam Steel, part of the DEMAC Group, operates in the construction materials sector and is known for manufacturing galvanized steel pipes. The company has been recognized for its manufacturing excellence, having achieved multiple ISO and ISI certifications. The DEMAC Group has a strong foothold in Kerala, with a focus on growth in the region.

The IPO raised ₹41.76 crore through a fresh issue of 46.4 lakh shares, and the proceeds will be directed toward:

• IT/Technological Upgradation of the manufacturing facility
• Expansion of solar power generation capacity
• Building a new factory shed cum storage facility
• Branding, advertising, and marketing efforts
• Increasing working capital

Financial Performance and Valuation
The company has experienced growth in its revenues, with ₹30,314.80 lakh recorded for FY24, a slight decrease from ₹35,995.71 lakh in FY23. However, the Profit After Tax (PAT) for FY24 was negative at ₹-519.30 lakh, signaling ongoing challenges in profitability.

With a pre-issue P/E ratio of 25.63x and a post-issue P/E ratio of 35.96x, Newmalayalam Steel’s valuation was somewhat high, especially given its negative PAT. The industry P/E ratio stands at 39x, suggesting that while the stock is reasonably priced relative to its sector, investors may need to adjust expectations for immediate returns.

Investment Outlook
The Newmalayalam Steel IPO comes at a time when market conditions are unpredictable. Despite high subscription numbers, the flat listing and subsequent decline indicate a cautious approach from the market. Given the company's weak profitability in recent years, investors may consider holding off on short-term investments in this stock. Long-term investors should keep an eye on the company’s expansion plans and profitability improvements to gauge future prospects.

The Upcoming IPOs in this week and coming weeks are Indo Farm, Technichem Organics, Leo Dry Fruits, Solar91 Cleantech, Rosmerta Digital and Avanse Financial.

The Current active IPO is Citichem India and Anya Polytech.

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This review provides essential details for investors considering Newmalayalam Steel and helps them understand the risks and rewards of investing in the NSE SME market.