SME IPO of entity with 2 Yamaha showrooms, 8 staff leaves internet puzzled

After a Delhi-based two-wheeler dealership company, Resourceful Automobile received bids worth ₹4,800 crore for its ₹12-crore initial public offering (IPO), social media is abuzz with comments, with some saying investor interest has reached an "insane" level, while others saying the outrage is unnecessary.

The ₹12-crore BSE-SME IPO of Resourceful Automobile, also known as Sawhney Automobiles, 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 from August 22-26, was entirely a fresh issue of 10.25 lakh shares at a price of ₹117 per share.

The reports regarding the company with only 2 Yamaha showrooms and 8 employees receiving 400X demand went viral on social media today, with many calling it "crazy" and a "sign" of excess.

"India will list anything with cash flow these days. Case in point: a single Yamaha dealership in NCR going public on SME Exchange. Is this a failure of banks, a low regulatory bar, or just opportunism? Might as well list the GST department. Will get 100x on DCF method," says an X user with the handle @arunvenk.

A user compared the company IPO to late comedian Jaspal Bhatti's "PP Waterballs golgappa" video from his comedy show 'Flop Show'. "This show of Jaspal Bhatti still seems to be relevant," says Abhishek Narang (@iabhinarang).

Another one gave a reference to Bhatti's old video, saying "PP waterball IPO will become a reality". "Found it tough to believe at first. But this guy with a single Yamaha showroom (nothing else) in Delhi is going for an SME IPO looking to raise 11 crores. Next what? Slowly the PP waterball IPO will become a reality," says Azhar Jafri (@zhr_jafri).

Founder of fintech Capital Mind, Deepak Shenoy, had a contrarian take on the SME IPO as he said he was not outraged at all. "It's an SME, with a 12 crore IPO. Firstly the oversubscription is BS - your money stays in your bank account and you simply cannot get an entry easily, so you keep money in your account and bid - if you don't get allocation, it will just get released and you still earn the interest. So oversubscription nowadays doesn't make sense to look at."

Explaining why smaller IPOs are getting oversubscribed these days, he says: "Even earlier it didn't because people would borrow like crazy, 100-200 cr. for four days, to fund an ASBA application, from NBFCs. RBI and SEBI put an end to that, so now the smaller IPOs are getting oversubscribed."

He said in this context, no one gave the small company ₹2,700 crore. "Money hasn't even left bank accounts. If they tried to raise 2700 cr. they will get nothing, most likely. People are applying more because it's a tiny IPO, period."

He adds people will buy anything, at any time, if there is a suitable narrative. "Is it a sign that people are investing in crappy cos? But excuse me, Jet Airways traded for many years after it was dead. I have put notes here on Twitter, in times that were less heady, that a company is GOING TO WIPE OUT ALL ITS EQUITY and your money is going to become ZERO, and people have still bought enough for upper circuits. So don't even start with "rationality" and all that. People will buy anything, at any time, if there is a suitable narrative."

On the company's credentials, he says it made ₹1.5 crore last year, and they're asking for a valuation of ₹31 crore. "I've seen a lot more "expensive" IPOs than that -- and who knows, they might even expand. Or they might not. These are risks that investors must take." "The bigger point is - no one is forcing you to buy into this or any IPO. You can take it as a sign of euphoria in the markets if you like. But it's just wrong to try and block such companies from doing IPOs - if anything encourage more," he adds.

The SME IPO of the Delhi-based company reflects a larger trend in the Indian equity space, as the country emerges as the hottest market for IPOs. In the first half of the calendar year 2024 (CY24), 153 IPOs (38 main board & 115 small and medium enterprises or SMEs) raised ₹34,923 crore, 3.5 times the ₹9,886 crore mobilised by 82 IPOs (10 main board and 72 SME) in the first half of last year. These accounted for 27% of global share by volume and 9% by proceeds, positioning the fifth-largest economy at the forefront of IPO action, as per the latest EY Global IPO Trends report.