IPOs on SME bourse too on a hot streak

The spectacular revival in the primary markets in the last few months is not limited to large IPOs such as Quess Corp or Mahanagar Gas. Public share sales of smaller companies on the dedicated SME boards of stock exchanges, too, have been on a hot streak.

All 13 companies that have listed on the SME boards since April have been oversubscribed, and eight are trading above their issue price.

For example, the ₹7.25-crore issue of Commercial Syn-Bags, an Indore-based manufacturer of bulk bags and tarpaulin, was subscribed over seven times, garnering a whopping ₹52 crore in application money. This stock is trading 50 per cent above its issue price.

Similarly, Surat-based Sysco Industries, which manufactures packaging material, made a public offer of ₹2.06 crore, and received 10 times as much interest in turn from investors, according to data compiled by Prime Database.

“Good SME stocks with strong fundamentals and promising potential are tracked by value investors. Big brokerages and select institutional investors have started taking interest in SME scrips gradually,” said Mahavir Lunawat, MD, Pantomath Capital Advisors, a merchant banking firm in the SME space that has handled most such IPOs.

“We’re also seeing more secondary market trading in these stocks by investors who did not get an IPO allotment, which reduces the pressure on the merchant banker to also be a market maker in these stocks,” he added.

In the four years since inception, close to 150 companies have been listed on the SME boards of both exchanges and early investors have slowly found that some of these companies are delivering returns several times their IPO issue price.

In September 2014, Ultracab Indian listed on the BSE SME board at ₹36 a share. Its closing price on Wednesday was ₹206. In April 2013, Ashapura Intimates listed at ₹40 a share for a ₹21-crore IPO. Its most recent closing price was ₹291.60.

The interest in the SME market is led by HNIs and large retail investors, and not so much by institutions, which have trouble with liquidity in this space.

“Given how the real estate market has slowed, the surplus HNI and ultra-HNI money is going into mutual funds, real estate debentures (for their yields), SME stocks, mid and small-cap stocks as they are more willing to go down the risk curve,” said Ashish Shanker, Head – Investment Advisory, Motilal Oswal Private Wealth Management.

Nevertheless, heightened risk remains a clear and present danger for investors in this category. While there are opportunities to find multi-baggers here, just as with smaller cap stocks on the main boards, prices can stagnate or even crash here.

On the NSE Emerge platform, Supreme (India) Impex which listed in March 2015 at ₹60 now trades at ₹71.40, not significantly higher.

On the BSE, JLA Infraville Shoppers has remained stagnant at its ₹10 issue price even after two years.

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