The much-awaited Rs 4,011 crore initial public offering (IPO) of National Securities Depository (NSDL) finally hit the markets on June 30. Investors had been eyeing this public issue for months, largely because NSDL is India’s oldest and largest depository, a key pillar of the capital markets infrastructure.
But while expectations soared high in the lead-up, the grey market premium (GMP) seems to be slipping just when the IPO window has officially opened.
Here’s a closer look at the current GMP trend, key IPO details, brokerage calls, and risks investors should keep in mind.
NSD IPO: GMP cool down
At its peak, NSDL shares were commanding a premium of Rs 156 in the unofficial grey market. This translates to a 20% jump over the issue’s upper price band of Rs 800. That was back in mid-July, when optimism was at its peak and the IPO buzz was building.
But now that the offer has officially opened, the excitement seems to be tapering. On the first day of bidding, the GMP fell to Rs 126, its lowest level so far and is currently hovering around Rs 130. This indicates an expected listing price of around Rs 930. That is still a decent 16% premium, but clearly below the initial euphoria.
However, it is important to note that this is not the official listing price and may fluctuate based on the market sentiment.
NSD IPO: Offer details – A big OFS, No fresh funds
The NSDL IPO is entirely an Offer for Sale (OFS). This means that no new shares are being issued and the company won’t receive any fresh capital. Instead, existing shareholders are offloading up to 5.01 crore shares.
The price band is this mainboard issue is set between Rs 760 to Rs 800 per share.
The IPO is open from July 30 to August 2, with allotment likely to be finalised on August 4, and listing expected on August 6.
NSD IPO: Who is exiting? Big names trim stakes
Several marquee shareholders are using the IPO as an exit route, largely due to SEBI regulations, which require no single shareholder to hold over 15% in a market infrastructure institution.
Here is the breakup –
IDBI Bank: Selling up to 2.22 crore shares (currently holds 26.01%)
National Stock Exchange (NSE): Offloading 1.80 crore shares (currently holds 24%)
SBI: Selling 40 lakh shares
HDFC Bank: Selling 20 lakh shares
Union Bank of India: Selling 5 lakh shares
SUUTI: Selling 34.15 lakh shares
NSDL IPO: Subscription status so far
On its opening day, the NSDL IPO received an overall subscription of 0.78 times. Retail investor portion subscribing to 84% of their allotted quota, while non-institutional investors (NIIs) booked 1.32 times their portion. Qualified institutional buyers (QIBs) subscribed 26% of their share.
NSD IPO: Brokerage calls – Fairly priced, But worth a look
Despite the recent dip in GMP, brokerages remain largely positive on NSDL’s long-term prospects though they are not overly bullish about massive listing gains.
Deven Choksey Research stated, “We find value in the NSDL’s initial issue, which is priced at 46.6x TTM P/E, compared to listed peer valuation of 64.1x TTM P/E, as we believe the Company will perform better over the upcoming 3–5 years, driven by its higher focus on driving growth in retail demat accounts… We assign a ‘Subscribe’ rating to its initial issue.”
Anand Rathi noted a similar view, “At the upper price band company is valued at a P/E of 46.6x to its FY25 earnings, and the market capitalisation of Rs 16,000 crore, with a Return on net worth of 17.1% post issue of equity shares. We believe that the IPO is fairly priced and recommend a ‘Subscribe’ rating to the IPO.”
Geojit also maintained a cautiously optimistic tone, “At the upper price band company is valued at a P/E of 46.6x to its FY25 earnings, and the market capitalisation of Rs 16,000 crore, with a Return on net worth of 17.1% post issue of equity shares. We believe that the IPO is fairly priced and recommend a ‘Subscribe’ rating to the IPO.”
NSDL IPO: Key risks to watch before you apply
Despite its strong pedigree and dominant market position, NSDL is not without risks. Several red flags have been highlighted in its draft red herring prospectus (DRHP). Some of them include-
Reliance on market activity
“A large proportion of our Company’s business is transaction-based and reliant on high trading volumes in the securities market. External factors beyond our control may affect the trading volumes which could adversely affect our business, cash flows, results of operation and financial condition.”
Limited diversification and innovation challenges:
“Our failure to expand our service offerings and market reach through continued innovation…may have an adverse impact on our business.”
Intense competition in a tightly regulated space
“We closely compete with our competitors across our businesses in a highly regulated environment.”
Shifting investor preferences
“If there is a shift in investor preferences away from investing and trading in securities to other avenues, it could reduce demand for our services and adversely affect our business, financial condition, and results of operations.”