Euphoria? A Rs 9 crore SME IPO gets bids worth over Rs 2,700 crore

Srivari currently sells a variety of spices including chilli powder, Sambhar masala, coriander powder, garam masala, chakki atta, etc. – all under the Srivari brand.

Srivari Spices and Foods, which packages spices and flour and markets it in Telangana and Andhra Pradesh, generated heavy interest from investors, getting 450 times the subscription for its SME IPO.

The company planned to raise Rs 9 crore from the market to primarily fund the working capital requirements of the company and “to benefit from listing…which will result in the enhancement of our brand name”.

“It is hard to pinpoint the exact reason for such a great response, but I think the business has done well so far, which may be leading to the clamouring,” said a merchant banker, requesting anonymity as that person is not authorised to talk about competitors clients.

The company in its draft papers said its revenue from operation grew at the rate of 77.25 percent CAGR during FY21-23. Its net profit had expanded at an even quicker 198 percent CAGR.

Srivari currently sells a variety of spices including chilli powder, Sambhar masala, coriander powder, garam masala, chakki atta, etc. – all under the Srivari brand. It claims to source its products directly from farmers across the country and market and sell directly to customers, without involving any major intermediaries, which helps it complete revenue share to the farmers and provide cost competitive and affordable products to its customers.

The company has two units – one for spices and other for atta. For FY23, spices contributed two-thirds of the revenue while the rest came from wheat flour. Its top five customers provided 56 percent of revenue while top 10 provided 70 percent of revenue.

At an earnings per share (EPS) of Rs 7.07 and price band of Rs 40-42, the company is offering its shares at six times its earnings to investors, which can be said to be very cheap compared to mainboard FMCG companies.

However, Srivari does not have what mainboard FMCG companies have – a moat. Being just a four-year old company, Srivari’s area of operations is very limited. The competition in the business is very stiff, and an analyst said it will be increasingly hard for the company to maintain its growth momentum.

This business is very easy to replicate, said Umesh Paliwal of Unlisted Zone, a dealer in unlisted shares. However, this is not stopping investors at all and keeping the scrip in demand in the grey market. The grey market premium (GMP) stands at 59-60 percent, according to several dealers active in the market.

Paliwal added that another reason could be relatively smaller size, making the subscription level optically higher. Most SME IPOs that came in the last few months have seen size 3-5 times of Srivari.

“It is pure euphoria,” said another dealer active in an unlisted market. "This is also an extension of what has been happening in the SME IPO segment where there is huge demand."

Shares of Srivari Foods will be listed on EMERGE Platform of National Stock Exchange of India Limited on August 18.

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