SRM Contractors freezes at 5% upper circuit; rises 12% against issue price

Shares of SRM Contractors were locked in the 5-per cent upper circuit at Rs 236.20, a 12.5 per cent gain against its issue price of Rs 210 on the BSE in Wednesday's intraday deals. The trade saw only buyers seen on the counter on its market debut.

A combined 1.1 million equity shares have changed hands and there are pending buy orders for 0.97 million shares on the National Stock Exchange (NSE) and BSE.

The stock of the civil construction company got listed at Rs 225, a 7 per cent premium over its issue price on the BSE. On the NSE, shares of SRM Contractors listed at Rs 215.25, a 2.5 per cent higher against its issue price. Currently, the stock is locked in the 5 per cent upper circuit at Rs 226.

The listing, analysts said, falls significantly short of pre-listing expectations and the high grey market premium (GMP) of Rs 90 (42 per cent premium) observed earlier.

They attribute the muted debut to unattractive valuation amid wobbly broader market conditions.

"That said, SRM Contractors' flat listing doesn't necessarily negate its future potential. The company's strong regional presence, in-house capabilities, and healthy order book remain positive points. Yet, given the market conditions, a cautious approach is advisable," said Shivani Nyati, Head of Wealth, Swastika Investmart.

SRM's IPO got a strong response from the investors with a solid 86.57 times subscription. The non-institutional bidders (NIIs) portion was subscribed a whopping 214.94 times. The quota for qualified institutional investors (QIBs) was subscribed 46.97 times, and the portion of retail investors was subscribed 59.59 times.

SRM Contractors is an engineering construction and development company engaged primarily in the construction of roads (including bridges), tunnels, slope stabilization works, and other miscellaneous civil construction activities in the Union Territories of Jammu & Kashmir and Ladakh.

In recent years, infrastructure development has remained a recurring theme in India’s economic development. The launch of various flagship government policies like the National Infrastructure Pipeline (NIP), and PM Gati Shakti are expected to improve freight movement, debottleneck the logistics sector, and improve the industrial production landscape, which would provide incremental growth in GDP.

"Factors like rapid urbanisation, increased freight movement, and demand for improved infrastructure have been pushing tunnel development and construction across the country. This is driving demand for new tunnels to connect different parts of the country and improve transportation efficiency. Owing to this, the tunnel construction is expected to continue for a few more years," brokerage firm BP Equities said in an IPO note.

With more focus on Indian Infrastructure, the tunneling sector is expected to propel with a strong pipeline network of 1,300 tunnels, spanning around the country with a length of more than 3,600 km. When compared state-wise in terms of upcoming tunnels, Jammu & Kashmir is the pioneer offering the largest pipeline network of around 200 tunnels.

Union Territory of Ladakh being a border area is of significant importance for national security as well as a popular tourist location, thus underscoring the key role of developing a robust road infrastructure, the brokerage firm said.

Meanwhile, the Union Budget FY23 saw a 35 per cent increase in capital expenditure to nearly Rs 7.5 trillion, highlighting the government's focus. The Ministry of Road Transport and Highways (MoRTH) received substantial budget hikes, reaching Rs 2.7 trillion in FY24 from Rs 83,000 crore in FY20, signaling aggressive infrastructure commitments.

The road sector, vital for economic expansion, is set for significant growth, especially in tunnel construction, supporting sectors like roads, hydropower, urban rail, irrigation, and water management. With India aiming for $5 trillion economy status by 2025, investments of $4.51 trillion by 2030 are earmarked, with NIP allocating Rs 20.34 trillion for highways by 2025.

"Jammu & Kashmir leads in upcoming tunnel projects, part of its broader infrastructure push. Ladakh, crucial for security and tourism, is also witnessing substantial road and tunnel developments. SRM Contractors plays a pivotal role in executing infrastructure projects in these regions, leveraging its expertise in challenging terrains," GEPL Capital said in a IPO note.