Resourceful Automobile IPO: Shares list flat despite 400X subscription

Shares of Resourceful Automobile, an SME (small and medium enterprise), made a flat debut on the stock market on Thursday as the stock was listed at the IPO price of ₹117 per share on BSE SME platform. The listing of the SME IPO was disappointing as its shares were commanding a grey market premium of ₹105 apiece, up 90% over issue price, in the unregulated market, ahead of listing. The flat listing could be attributed to recent outrage against the company, having only 2 Yamaha showrooms and 8 employees, received an overwhelming response for its IPO before listing.

After a flat opening today, the trading in the scrip, however, picked up pace and surged 5% to hit the day's high at ₹122.85 on the BSE. The ₹12-crore BSE-SME IPO of Delhi-based company, also known as Sawhney Automobiles, had attracted bids worth ₹4,768.88 crore.

The IPO, having a market capitalisation of around ₹31 crore, 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 400x subscription of Resourceful Automobile IPO became a topic of discussion on social media this week, with many calling the investor interest in such a small firm "insane". This also caused worries about an overheated market and potential bubbles among many. There has been an increase in the number of SME issues in the recent past as also the investor participation in such offerings. During the last decade, more than ₹14,000 crore has been raised through this platform, of which around ₹6,000 crore was raised during FY‘24.

Amid growing concerns about the quality of companies raising funds through this IPO route, both the market regulator and exchanges have increased scrutiny against SMEs. Capital market regulator SEBI in its August 28 statement urged investors to be “careful and watchful” and exercise caution while investing in such securities. It also advised not to rely on unverified social media posts and not to invest based on tips or rumours.

SEBI said post listing, some SME companies were resorting to certain means that project an "unrealistic picture" of their operations. "Such companies or promoters make public announcements that create a positive picture of operations. These announcements are typically followed up with various corporate actions such as bonus issues, stock splits, preferential allotments, etc."

SEBI says such actions create a "positive sentiment" amongst investors, which induces them to purchase such securities. "Simultaneously, this also presents an easy opportunity to the promoters to off-load their holdings in such companies at elevated prices."

Last week, the National Stock Exchange (NSE) also 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.