Despite the tightening of regulatory norms by the capital market regulator SEBI and frontline regulators, including stock exchanges, investors’ appetite for small and medium companies’ initial public offers (IPO) has not waned.
The oversubscription juggernaut in SME IPOs continues even after the minimum retail investment was doubled to ₹2 lakh per application.
Spicy debut
The recent SME IPO of Shyam Dhani Industries on NSE Emerge attracted the highest-ever subscription of ₹25,308 crore against the company’s share offer of ₹38 crore. The IPO of the company that produces premium spices and spice powders was oversubscribed 918 times on Wednesday.
Sold in the price band of ₹65-70 a share, the minimum investment by a retail investor in the company was pegged at ₹2.80 lakh.
The retail portion received subscriptions worth ₹14,560 crore for 208 crore shares against an offer of 18.28 lakh shares, while institutional investors placed bids worth ₹8,872 crore for 126 crore shares against an offer of 7.86 lakh shares.
Earlier this month, Exato Technologies debuted on BSE Emerge at a 90 per cent premium over the issue price after its IPO received bids worth ₹657 crore against plans to raise ₹36 crore.
The company provides technology-driven customer engagement and operational solutions. Its clients include MakeMyTrip, RBL Bank, IGT Solutions, IKS and WNS, among others.
Exato Technologies was traded at ₹391 on Wednesday against the issue price of ₹140 apiece.
Similarly, TechD Cybersecurity made a stellar debut on NSE Emerge in September at ₹367 apiece against the issue price of ₹193 a share. The issue was oversubscribed 718 times, receiving bids worth ₹499 crore against plans to raise ₹37 crore.
Investor shift
Ashok Holani, Director, Holani Consultants, said investors’ perception of SMEs has been changing, given the conducive business environment and the country’s economic growth potential.
A Chartered Accountant himself, Holani mentors companies for one-year after hand-picking them for IPO based on business prospects, promoters track-record and valuation expectations.
“While I’m not here to say all SME IPOs are good, investors should be more selective based on the merchant banker background and do their due diligence before placing their bet,” he added.
Ashok Singh, a regular investor in SME IPOs, said that though there are pitfalls, investing in SME IPOs gives the feeling of owning the company as the equity capital is less.
Getting allotment in the retail portion of an SME IPO is a major challenge as the demand is always high for companies backed by a good merchant banker, he added.