Markets

Half of oversubscribed SME public issues trade below offer price

Suresh P Iyengar Mumbai | Updated on April 06, 2018

Raises serious questions over offer price and valuation

Notwithstanding the mad rush to list on the SME exchange, the reality is finally starting to catch up with the market, separating the wheat from the chaff. Almost 50 per cent of the SME IPOs which grabbed the headlines last fiscal for being subscribed multiple times are trading below their offer price, raising questions on their valuations.

Zodiac Energy, whose issue was subscribed 102 times, is now trading at ₹28, while its IPO price was ₹52. The company had raised ₹10 crore last December. Similarly, the issue of Accord Synergy which was subscribed 138 times is now trading at ₹42 against the IPO price of ₹60. However, there are a few companies such as Worth Peripherals and Vasa Retail & Overseas which doubled investors’ wealth. The stock of Worth Peripherals has more than doubled in the last six months to ₹94 from the issue price of ₹43, while Vasa Retail moved up 96 per cent to ₹59 from the issue price of ₹30.

Denying that SME companies were overpriced at the IPO stage, Mahavir Lunawat, Managing Director, Pantomath Group, said valuation of SME stocks should be carefully arrived at factoring in risks involved. Stocks that are rightly priced backed by fundamentals are getting higher institutional participation and have performed well even after IPO, he said.

Leveraged positions affect

Oversubscription backed by leveraged positions with listing gains in mind, often impacts the stock adversely, he added. Ashish Shah, Founder & CEO, Vertoz Advertising, said the company had got listed on the NSE Emerge platform and has lived up to investors’ expectations and has delivered 200 per cent return. Even at the current price of ₹187, the company has delivered a return of 70 per cent compared to the issue price of ₹108.

Nikhil Khandelwal, Managing Director, Systematix Group, said as a merchant banker the company believes that only SMEs with good growth potential and quality management will get good response from investors in future as the market has matured over a period of time.

Fund mop-up double

The funds raised by SMEs in the last fiscal jumped two-fold to ₹2,155 crore, against ₹810 crore logged in the previous year. A total of 148 companies got listed on the two SME platforms of the BSE and the NSE, against 80 firms which ventured to tap this market in 2016-17.

The average ticket size of IPOs also increased in the last fiscal to ₹14.56 crore against ₹10.12 crore in the preceding financial year. Besides, institutional investors including banks and mutual funds have showed interest in the public offers of SMEs.

Kamal Kothari, Managing Director, Guiness Corporate Advisors, said the company closed one of the largest IPOs of MMP Industries on the NSE Emerge last fiscal with good fund participation in the anchor portion.

“The coming days also appear very promising as we are working with good companies spread across sectors and are confident of doing at least 15 to 20 IPOs during the current year,” he said.

Published on April 06, 2018

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