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Divgi TorqTransfer Systems IPO issue consists of a sale of fresh equity shares aggregating to Rs 180 crore, along with an offer-for-sale (OFS) of 39,34,243 equity shares aggregating to Rs 232.12 crore. The company aims to mop up Rs 412.12 crore via its IPO. Divgi TorqTransfer Systems is engaged in the business as an automotive component entity. Divgi TorqTransfer Systems IPO is the first mainboard IPO in 2023 after a gap of about two months. The IPO will see Promoters and existing investors participating in OFS which include Oman India Joint Investment Fund II, NRJN Family Trust, Bharat Bhachandra Divgi, Sanjay Bhalchandra Divgi, Ashish Anant Divgi, Arun Ramdas Idgunji and Kishore Mangesh Kalbag.

Anchor Investors:

Divgi TorqTransfer Systems has raised Rs 185 crore from marquee anchor investors like ICICI Prudential Mutual Fund, Nippon Life India, Quant Mutual Fund, Edelweiss Trusteeship, Motilal Oswal Mutual Fund and others. Top five anchors investors are:

About Divgi TorqTransfer Systems Limited

• Divgi Torqtransfer Systems Limited was incorporated on December 16, 1964.
• Divgi TorqTransfer Systems manufactures manual transmissions, DCT, transfer cases, torque couplers & auto-locking hubs (ALH), essential components for 4WD/ AWD vehicles, Synchronizers for transmissions (gearboxes) and components.
• The Pune based automotive player mainly caters to the passenger and small commercial vehicle industry and it is venturing into EV (Electric Vehicle) transmissions. Divgi TorqTransfer Systems has manufacturing facilities in Bhosari and Shivare in Pune and Sirsi in Karnataka. The 4th plant is under construction at Shirwal, Maharashtra.
• Divgi Torqtransfer Systems Limited has a client base of global OEMs and global transmission systems. suppliers. some of its key customers include names like Mahindra & Mahindra, Tata Motors and Toyota Kirloskar Auto Parts etc.

Divgi TorqTransfer Systems IPO: Financials

Divgi TorqTransfer Systems IPO: Salient Points

• Net proceeds from the issue will be utilized towards funding capital expenditure requirements for the purchase of equipment/machineries of manufacturing facilities and general corporate purposes.
• Divgi TorqTransfer Systems was earlier referred to BIFR and was declared a Sick Company in 2008. It thereafter attained a positive net worth and was discharged from the purview of the Sick Industrial Companies in 2010.
• Currently company has license agreement with BorgWarner which was entered into in 2004 and subsequently renewed in 2017 for another 7 years. This provided it exclusive rights to manufacture transfer cases and automatic locking hubs, and non-exclusive rights to manufacture manual transmissions and synchronizers for manual transmissions.
• Divgi TorqTransfer Systems has entered into an exclusive distribution agreement with a Japanese automotive supply chain company for sourcing of products and components made by the company.
• company’s upcoming 4th manufacturing unit at is under construction at Shirwal, Maharashtra and is 80% complete.
• The promoters are Jitendra Bhaskar Divgi, Hirendra Bhaskar Divgi and Divgi Holdings Private Limited.
• Sale of goods across geographic markets is depicted below:

Risks

• Client concentration: Its largest customer M&M accounted for 53% of revenue in FY22, which rose to 74% in H1FY23.
• Dependence on China and Russia for business.
• Contribution of exports to top line has come down from about 52% in FY20 to 8.4% in H1FY23
• Trade receivables were at 52% of revenue from operations in last 6 months.

Peers

Divgi TorqTransfer Systems IPO: Assessment

• CRISIL Research estimates overall PV production to grow at 8-10% CAGR from Fiscal 2022 to 2027 to reach 5.5-6 million units by Fiscal 2027. Production of PVs in India recorded a 3% CAGR between Fiscals 2017 and 2019 amidst the growth in domestic and export demand.
• Market for EV transmission is expected to increase by 77-82% CAGR from Fiscal 2022 and 2027 in volume terms as well as value terms. EV transmission market is expected to be around ₹ 42-44 billion with a volume of 435-440 thousand by Fiscal 2027.
• Leading player supplying transfer case systems to automotive OEMs in India and the largest supplier of transfer case systems to passenger vehicle manufacturers in India.
• Divgi TorqTransfer Systems is one of the few companies that serves both as a systems level solution provider as well as component kit supplier to global OEMs and Tier I transmission systems suppliers for a range of automotive vehicles.
• Capability to develop and provide system level transfer case, torque coupler, DCT solutions and transmission systems for EVs across a wide array of automotive vehicles and geographies
• Long-term relationships with marquee domestic and global customers;
• Experienced board of directors and senior management team supported by skilled and qualified workforce;
• Consistent financial performance with focus on innovation and R&D capabilities.
• Divgi TorqTransfer Systems aims to Capture market opportunities in the growing EV space, and the fast-growing demand for automatic transmissions in the passenger SUVs segment.
• Company has focus on optimization through product engineering and localisation;
• Company has continued focus on R&D to manufacture diverse products and expand into products to serve new and emerging  trends.  
• Divgi TorqTransfer Systems is a business to business (B2B) manufacturing company, and derives a large chunk of its revenue from top five customers Mahindra & Mahindra, Tata Motors, Toyota Kirloskar Auto Parts, BorgWarner and a Russian automobile manufacturer.
• The increase in domestic sales has largely been due to launch of new Mahindra Thar while exports have been marked down due to decline in exports to Russia.
• The company has been paying dividends for the last three years.
• Social media reports indicate a GMP of about Rs. 60 on the issue price a few days back. But there now reports of almost no deals and not sure of GMP.
• PE ratio is 35.2 x (fy23 annualized)
• Nandan Nilekani’s NRJN Family Trust will sell 14.4 lakh shares as part of OFS. It holds 2,394,720 shares in the company. ling more than 505 of its stake.
• The long term prospects look good due to its technical prowess in transmission space & incremental revenues going forward in EV transmission as well as Dual Clutch transmission space.
• Almost 90% of its revenue at present is internal combustion engine related . Some comes from hybrid supplies to Toyota. Revenue from EV will commence in 2023 with supply to Tata Motors. IN campirion Sona coms is better placed in the EV space.
• While Divgi TorqTransfer Systems has strong fundamentals, capable management with vison, the IPO appears fully priced based on its valuations. If I subscribe to it , it shall be more from a long-term perspective only. 
• I may place some bids on last day mainly due to good long term prospects.
• Please do your own diligence as IPOs in past have not given much listing gains to investors and have many times ended in losses.

• Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. Iam a postgraduate in engineering & Management . Also Certified in some exams like NISM-Series-V-A: Mutual Fund Distributors Certification, NISM-Series-X-A: Investment Adviser (Level 1) Certification and NISM-Series-X-B: Investment Adviser (Level 2) Examination. This post is my view on the subject matter and is only academic and exploratory in nature. It is not meant to influence investment decisions of investors. I may have bias/vested interest in covered Stock/Mutual Funds/NCD etc. due to my own investment or leaning. Further my understanding of the areas on which I write may be imperfect or incomplete and data could be wrong due to limited time and resources at my disposal. Please do your own due diligence as stock market/MF investments have high degree of inherent risk.