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NEW DELHI: As Lava International prepares for an initial public offering (IPO), investors have started chasing its stock in the grey market. The stock has risen 10-20%. In the second half of May, it was trading at Rs325. Depending on the broker, an investor can get it between Rs350 and Rs400 apiece.

Two weeks back, Paytm saw a similar investor interest. Its stock rose over 70% in the grey market. However, Paytm stocks were in short supply. In the case of Lava International, there is enough supply available, according to brokers.

“The company has sent a letter to existing shareholders informing about the IPO. We expect Lava to file DRHP (Draft Red Herring Prospectus) by June-end or early July," said Dinesh Gupta, co-founder, UnlistedZone, a firm that trades in stocks of unlisted companies.

The letter, which Lava sent to existing shareholders, talks about the IPO through fresh issuance as well as allowing existing shareholders to sell their stocks during the public offer.

Lava did not comment on the IPO. An email sent to Lava International has remained unanswered for over a week.

“Earlier this year, the company had done rights issue at ]533 a share. That’s why there’s a lot of investor interest in the stock," said Manish Mittal, director, Mittal Portfolios, a company that deals in unlisted and delisted securities.

According to brokers, investors are expecting the IPO pricing to be over 550. “The company has applied for the production-linked incentive (PLI) scheme by the government. If they get approval, their margins could improve," said Gupta.

Stocks available in the grey market are sourced from different places, with employee stock options plan a primary one. Once employees have the stock in their demat account, they sell it if they get a better price from another investor than what the company is offering in the buyback.

(Do you have personal finance queries? Send them to mintmoney@livemint.com and get them answered by industry experts)

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