SME IPO Setback: Icodex, Mahendra crash 20% on debut following governance concerns

SME IPO

The SME IPO segment, which is typically known for huge oversubscription and bumper listing gains, has seen a double shocker of sorts with two back-to-back listings wherein the stock plunged on the day of listing to straightaway lock at the lower circuit.

On Tuesday, Icodex Publishing Solutions Ltd crashed 20 percent from its issue price on the BSE SME platform. A day later, Mahendra Realtors & Infrastructure Ltd met the same fate on NSE SME segment.

Interestingly, the huge plunge in both the cases is quite striking since both the firms are profit-making entities. Analysts attribute the fall to weak corporate governance signals and questionable allocation patterns.

In the IPO of Icodex, just 2.6 percent was reserved for QIBs and no anchor investors came on board. Mahendra Realtors, meanwhile, allotted less than one percent to QIBs — a stark contrast to the 30–40 percent seen in earlier SME IPOs.

That's not all as there are more governance concerns that seem to have weighed heavily on the two companies.

In the case of Mahendra Realtors, nearly 90 percent of the firm’s profits are being taken out as remuneration by its promoters. The company disclosed in its RHP that its Managing Director Hemanshu Shah and Whole-Time Director Bhavesh M Shah have had their annual salaries raised from Rs 56 lakh to Rs 6.72 crore each. This takes total promoter remuneration to Rs 13.44 crore, almost equalling the company’s FY25 profit after tax of Rs 14.87 crore.

Icodex too has seen many red flags being raised by experts. Of the Rs 42 crore IPO proceeds, Rs 16.7 crore is earmarked for office premises — a non-revenue-generating asset — while only Rs 5.2 crore is being directed towards working capital. Analysts also flagged valuation concerns: at a P/E of around 17.8x on FY25 EPS of Rs 7.32 and NAV per share of Rs 15.56, the IPO was priced steeply at Rs 98–102.

On the financial front, Icodex reported Rs 21.88 crore in revenue for FY24, up from Rs 10.40 crore in the previous year, while net profit nearly doubled to Rs 8.96 crore from Rs 4.4 crore. Despite this growth, investors appear wary, with governance and valuation issues overshadowing the company’s fundamentals.

Market focus has now shifted to Studio LSD Ltd, whose Rs 70 crore IPO closed today (Wednesday) with a subscription of 2.50 times. The QIB portion, however, drew less than one percent bids, raising eyebrows about institutional appetite.

“It looks like a perfect disaster candidate and could join the club of weak listings like Icodex and Mahendra, though I hope to be wrong,” said G K Agrawal, an individual investor who closely tracks and participates in SME IPOs. The company is scheduled to debut on the bourses on August 25.

Incidentally, August has been a busy month for the SME IPO market with 13 public issues already listed, raising over Rs 850 crore. Another 10 offerings are currently underway, targeting fund mobilisation of around Rs 500 crore.

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