The Curious Saga of Yamaha Dealer's SME IPO
By: Dr. Ankur Mittal (Professor, SOB, UPES)
A few weeks back there was a strong backlash against “Resourceful Automobile” subscription model which highlights a deeper dissatisfaction with the current system governing SME IPOs.
An illustrative case is Resourceful Automobile, which saw an extraordinary 496 times subscription in the retail category. However, there are concerns about whether this enthusiasm will persist in the secondary market. A Delhi-based 2-wheeler dealer’s IPO, with only 8 employees, was subscribed 420 times, leaving market experts puzzled. The situation is particularly striking with oversubscriptions of ₹4800 crore bid for an IPO of just ₹12 crore, reflecting a systemic problem rather than issues with the companies themselves. In 2024 alone, nearly 150 SME IPOs have been launched, many lacking solid fundamentals. This trend of investing in SME IPO’s is purely for listing gains, rather than long-term growth which eventually can convert high risks into substantial losses.
Resourceful Automobile, trading under the brand Sawhney Automobile Company and an authorized dealer for Yamaha Motors, presents a concerning case. Despite a staggering 496 times subscription in the retail category, its financial metrics do not justify such high enthusiasm. With a P/E multiple of 19x post listing and an EPS of ₹6.25, the company's financials do not support its high valuation. For FY 2023, the revenue was ₹19 crores with a profit of ₹42 lakhs, and for FY 2024 up to February, the profit was only ₹1.5 crores. This suggests that investors should exercise caution and prioritize company fundamentals over market trends and social media hype.
Despite its share is trading at an 89% Grey Market premium before listing, the actual listing price of ₹117 saw minimal gains, with the stock currently trading at ₹107, below its listing price.
The Securities and Exchange Board of India (SEBI) is preparing a consultation paper aimed at tightening regulations and increasing transparency for SME IPOs. Currently, SMEs disclose their balance sheets only every six months, unlike larger companies that provide quarterly updates. This gap in reporting can foster an environment ripe for market manipulation, as the current frenzy around SME IPOs reveals systemic issues rather than individual company shortcomings.
SEBI has highlighted a critical shortfall in the due diligence performed by merchant bankers for SME IPOs, emphasizing that investors should not be swayed solely by grey market premiums. While SME IPOs can be valuable for raising funds, they can also harbor problematic companies. Investors need to carefully evaluate a company's fundamentals and be wary of promoters who may attempt to manipulate the market. SEBI’s current approach has been too lenient, and a more assertive regulatory stance is needed to address market abuses.
SEBI has also warned investors about the potential for price manipulation following IPO’s. The regulator has observed that some companies create an artificially positive narrative to boost their stock prices post-IPO. This surge can allow early investors to offload their holdings, often leaving retail investors at a disadvantage.
Overall, the broader market context shows that many SMEs are entering the market with weak fundamentals, driven by the lure of quick profits. This trend could lead to a bubble, with significant consequences for retail investors. Regulatory bodies like SEBI need to tighten their oversight to ensure a fair and transparent market for all participants, safeguarding investors from potential pitfalls and ensuring the market remains robust.
In these day I am having trust issues with mainboard ipo's too!!!!