Resourceful Automobile IPO: An SME with 2 Yamaha showrooms and 8 staff gets bids worth ₹4,769 cr

In recent years, the Indian stock market has seen a record surge in Small and Medium Enterprises (SMEs) initial public offerings (IPOs), a trend that reflects investors' growing appetite for new stocks. In the first seven months of the calendar year 2024 (till July), as many as 144 SME companies raised ₹4,800 crore via the IPO route, which is the highest amount raised in any calendar year since the launch of the BSE's SME platform and NSE Emerge in 2012. Last year, 182 SME companies had raised ₹4,686 crore via the IPO route. The IPO market is witnessing strong interest from all three segments of investors – retail, qualified institutional bidders (QIB), and non-institutional investors (NII), which often translates into higher listing gains.

For instance, the ₹12-crore BSE-SME IPO of Delhi-based Resourceful Automobile, also known as Sawhney Automobiles, created history by attracting bids worth ₹4,768.88 crore. The IPO, having a market capitalisation of around ₹31 crore, received an overwhelming response from all categories of investors and was subscribed 418.82 times. The retail investors’ portion was subscribed 496.22 times, while the other quota (NII and QIB) was booked 315.61 times. The public issue, which opened for subscription between August 22-26, was entirely a fresh issue of 10.25 lakh shares at a price of ₹117 per share.

The humongous response to the IPO of Resourceful Automobile, which operates only two Yamaha showrooms in New Delhi and employs just eight people, indicates the prevailing craze for such offerings on domestic bourses. The tentative date for listing of shares of Resourceful Automobile on the BSE SME platform is August 29. Ahead of listing, the stock was commanding a grey market premium of ₹105 per share, or 89.74%, over the issue price in the unlisted market. This indicates that the stock is likely to make a bumper debut at around ₹222 apiece. According to the red herring prospectus (RHP), Resourceful Automobile, promoted by Rahul Sawhney, Megha Chawla, and Bindu Sawhney, intends to use the IPO proceeds to fund the expansion of its operations, including the opening of two new showrooms in the Delhi-NCR region, repay debts, and meet working capital requirements. The promoters currently own 100% stake in the company, and post listing their stake will come down to 61.41%.

However, investors’ expectation of making a high returns on their IPO investments have raised concerns about an overheated market and potential bubbles. Amid growing concerns about the quality of companies raising funds through this IPO route, both the market regulator and exchanges have recently increased scrutiny against SMEs. Last week, the National Stock Exchange (NSE) tightened eligibility conditions for the listing of SMEs by including positive free cash flow to equity (FCFE) as a criterion. The new norms will apply to all draft documents filed from September 1 onwards. “The company/entity should have positive FCF to equity for at least two out of the three financial years preceding the application,” said NSE in a circular outlining the computation methodology. Besides, the NSE has capped the listing gain of a debutant stock at 90% mark over the issue price to make the process of setting the initial share price fairer and more consistent.

(DISCLAIMER: The views and opinions expressed by investment experts on fortuneindia.com are either their own or of their organisations, but not necessarily that of fortuneindia.com and its editorial team. Readers are advised to consult certified experts before taking investment decisions.)