IPO Analysis

Divgi TorqTransfer Systems IPO: Should you subscribe?

This year's first IPO, Divgi TorqTransfer Systems, opened today. Find out if it is worth subscribing to.

Divgi TorqTransfer Systems IPO: Is it worth subscribing to?

In a nutshell

  • Quality: Divgi has healthy operating cash flows. Its ROE and ROCE for FY22 are 14.5 and 18.0 per cent, respectively. It also has the highest net profit margin in its segment.
  • Growth: In the last three years, Divgi's topline and profit after tax grew at a CAGR of 21.2 and 28.3 per cent, respectively. An underpenetrated market and the government's PLI scheme should help the company grow.
  • Valuation: The stock will be priced relatively lower than its peers in terms of both P/E and P/B.
  • Overview: Opportunities in the EV segment and an underpenetrated market will help the company grow. However, its dependence on China and Russia for business makes it vulnerable to adverse macro events.

About the company
Divgi TorqTransfer Systems is an automotive component manufacturer and primarily makes specialised transmission systems (transmission system transmits engine power to all four car wheels). Recently, it has also started to design and develop transmission system prototypes for EVs.


  • Divgi operates in the niche segment of transmission system manufacturing, which requires significant in-house software development capability.
  • Long-term relationships with marquee domestic and global manufacturers, such as BorgWarner, Tata Motors and Mahindra & Mahindra.


  • Revenue concentration. In FY20, FY21 and FY22, Divgi's top five clients accounted for 86.9, 92.9 and 91.3 per cent of its revenue, respectively. This over-reliance on its top clients for revenue makes it vulnerable.
  • Geographical concentration. The company's topline is heavily dependent on business from Russia and China. In FY20, FY21 and FY22, these two countries accounted for 52.1, 64.3 and 77.4 per cent of its revenue, respectively. Any adverse event in these countries will impact its operations significantly.

Disclaimer: This is not a stock recommendation. Do your due diligence before investing.

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