Brokerages, merchant bankers caution on SME IPO oversubscription euphoria

A host of brokerage firms, merchant bankers and street participants believe that the SME IPO will be riding high on spirits but valuations need to be more realistic amid the increased participation from retail and institutional investors. Market experts, lauded Sebi's surveillance for highlighting the 'irrational exuberance' in the SME space.

In an event hosted by PHD Chamber of Commerce and Industry (PHDCCI) on Friday, brokerages said that fundamentally strong companies will continue to create wealth for the investors in the long-run. They said that promoters, bankers and investors need to be more realistic about valuations and returns and shall focus on creating a good ecosystem for the space.

More than 950 SME companies have raised about Rs 15,500 crore via their issue since inception. In less than three-months of 2024, SME companies have raised funds more than Rs 1,000 crore via IPOs with robust oversubscriptions. Even this March saw the biggest ever SME IPO of Rs 189.50 crore of KP Green Engineering.

Anand Srivastava, Executive Director at Share India Securities said that SME IPOs are a new idea for the Indian markets but the issues have seen high interest amid the rising awareness for smaller issues. However, he cautioned that there is some euphoria in the market, particularly in the SME space and it will continue as everyone is making a good amount of money.

He said that valuation is inherent and merchant bankers need to work on it for all stakeholders. "Merchant Banker's duty is to restore the confidence of investors in the India's SME growth story but also be realistic about valuations as growth, eventually, will follow. Investors' interests have changed with changing times," Srivastava added.

SME IPOs like Kay Cee Energy & Infra fetched an oversubscription of over 1,050 times, while the issue. Another IPO, Maxposure Ltd saw a bidding of about 990 times. The former raised Rs 15.93 crore via IPO, while the latter one's issue rise was Rs 20.26 crore. Other issues like Koura Fine Diamond Jewelry, Signoria Creationand Fonebox Retail were booked 650-730 times.

Sunil K Shah, Global CEO & MD, Khambatta Securities said that successful IPOs create wealth for investors over a long term. Shah defined IPO as a tool of wealth democratization for public investors, which adds value with better corporate governance. "The listed entities have a smooth transition with lesser jitters, improved transparency and professional management," he said.

Navin Tekwani, Vice President at Hem Securities said that IPO's ecosystem has evolved, specially in the SME space and euphoria will continue. He emphasized that good businesses are coming forward to raise funds from primary markets and due diligence is must while preparing for the primary offering. "We have seen a sharp reaction in the space after SEBI chief's comments," he said.

Talking to Business Today, Tekwani said that regulatory authorities are vigilant and wise to caution the investors to be realistic. However, the astronomical returns in the SME IPO space in the last few months has been seen as a short-cut to make a quick buck by the investors but a notion of cautions shall be there. "Right businesses with great prepositions will continue to propel."