Resourceful Auto SME IPO: Investors mystified over bumper subscription for firm with '2 Yamaha showrooms, 8 employees'

Many have attributed the hype to the current bullish sentiment in the SME market.

An SME IPO went viral on social media platform X on August 26 for the blockbuster response it evoked from investors despite its seemingly weak fundamentals.

Resourceful Automobile, which operates only two Yamaha showrooms in New Delhi and employs just eight people, received a staggering 400 times subscription on its final day of bidding, August 26. The bumper response, coupled with a high grey market premium (GMP), has sparked widespread discussions on the social media platforms.

The IPO, which opened on August 22, saw bids that far exceeded expectations. Resourceful Automobile operates just two Yamaha two-wheeler showrooms under the name “Sawhney Automobiles”. Resourceful Automobile will list on BSE SME platform on August 29 and allotment status will be announced on August 27.

The issue size of the IPO is about Rs 12 crore and official registrar to the issue is Cameo Corporate Services.

According to the company’s red herring prospectus (RHP), Resourceful Automobile plans to use the IPO proceeds to fund the expansion of its operations, including the opening of two new showrooms in the Delhi-NCR region, debt repayment, and covering working capital needs.

The company, headquartered in Delhi, specialises in the sale and servicing of Yamaha motorcycles and scooters, and has a small workforce of eight employees. Of these, three handle finance and legal matters, two manage sales and marketing, one oversees HR and administration, while the remaining two are responsible for operations.

Despite this limited operational scale, the company’s IPO has garnered massive attention. Traders and retail investors alike were mystified at the outsized subscription figures for a firm with such a modest footprint.

According to multiple websites that track the grey market premium activities, the shares were commanding a premium of up to 70 percent in the unlisted market. However, the high GMP has also triggered caution among traders on X who are voicing their concerns.

A number of voices on X raised questions about the logic behind the frenzy. One trader, Akshay Jogani, expressed his disbelief, tweeted, “Resourceful Automobile SME IPO is crazy. Two Yamaha dealership showrooms, eight employees. Asking ₹12 Cr, got ~₹2700 Cr in bids. Market cap ~₹31 Cr at IPO price on a net worth of ~₹1.5 Cr. Yet, 227x subscribed. Is no one asking what the terminal value of two dealership showrooms and eight employees is?”

Another trader, Mr. X, warned against jumping on the bandwagon, posting, “Avoiding #ResourcefulAutomobile IPO. Operates 2 Showrooms, sells Yamaha two-wheelers under the brand name Sawhney Automobile. Only has 8 employees. Current GMP at 73% (looks fabricated).”

For the period ending October 31, 2023, Resourceful Automobile reported a negative cash flow of Rs 19.33 lakh from its operating activities.

The high liquidity and oversubscription have baffled market observers, who are unsure if the response is based on sound fundamentals or driven purely by speculation. Viral Nagda, another trader, noted the dissonance between the company’s recent performance and the current market enthusiasm. He tweeted, “Indian Markets Hit Fever Pitch as Resourceful Automobile's IPO is Oversubscribed by 200x Despite Negative Cash Flow. #ResourcefulAutomobile sought ₹12 Cr, received ₹2400 Cr. Despite two years of negative cash flow, the grey market premium soars over 70%.”

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