SME IPOs of last year: 33 of 55 stocks trading above offer price

BEW Engineering listed in September 2021 after a Rs 3.75 crore share sale and is up over 14-fold from its issue price of Rs 58 a share.

Shares of EKI Energy Services, Bombay Metrics Supply Chain, and Kotyark Industries, which listed last year, have increased 10- to 13-fold from their respective issue prices.

Shares of 14 companies – CWD, Party Cruisers, Prevest Denpro, Nupur Recyclers, Shri Venkatesh Refineries, Gretex Corporate Services, Du Digital Technologies, Rajeshwari Cans, Promax Power, Jainam Ferro Alloys, Platinumone Business Services, Siddhika Coatings, Clara Industries, and Vivo Collaboration Solutions – have surged between 100 percent and 900 percent since last year.

High risk

With supernormal returns over a short time, analysts are cautious and said the sentiment for such issues can change quickly and only a couple of disappointing listings are enough to dent investor confidence.

“With the flurry of SME IPOs hitting the street, which has largely captivated investor interest, it is crucial to track the record of such SMEs post-listing, which is overall mixed,” said Manan Doshi, cofounder of UnlistedArena.com, which deals in unlisted and pre-IPO shares. “Given that many of these businesses are still in their infancy, investing in them carries a high risk but huge potential gain. It is challenging to evaluate the business prospects, promoters’ quality, and corporate governance because many businesses have a limited operational presence. However, it is crucial to examine these essential factors because doing otherwise might prove expensive.”

Of the 55 SMEs that listed last year, the shares of 21 are currently trading below their issue price and are 0.5-87 percent lower since listing.

Rangoli Tradecomm, which listed in March 2021 after a Rs 42.83 crore SME IPO, has declined over 87 percent from its issue price of Rs 207 a share.

Omnipotent Industries, AA Plus Tradelink, AAshka Hospitals, Dynamic Services & Securities, and Adjia Technologies are down almost 70 percent from their issue prices.

“Due to small issue sizes, these IPOs witness huge oversubscription from applicants, a large part of whom aim to get a quick bite from listing. Liquidity in these counters is low due to shares being traded in a high lot sizes only. If we analyse past records, it is observed that while the returns can be extraordinary, the losses too are in similar fashion,” Doshi said.

According to Amit Pamnani, chief investment officer for investment banking at Swastika Investmart, many SMEs are coming up with IPOs to get the benefits of market visibility, compliance checks, and corporate structuring. With funds in hands, companies have been able to focus on optimised production and take advantage of production-linked incentive schemes for SMEs.

“In addition to PLI schemes, the world has been noticing geopolitical and ideological changes and the shift is from China-centric to bipolar. Taking recent developments into account, tech giants are bullish on Indian industries and focusing on Indian production lines. This industrialisation reform has in turn benefitted small and medium enterprises by being a part of the ecosystem,” Pamnani added.