These 6 SME IPOs made no sense but D-Street loved them anyway

It's like negotiating a Rs 1 lakh raise with HR and getting offered Rs 25 crore instead-a pipedream for most of us but a reality for many small and medium enterprises (SMEs) taking the IPO route. Nearly 46 per cent of all SME IPOs in the last year have been subscribed over 100 times! That means that for a Rs 10 crore fundraising, companies have gotten bids of Rs 1,000 crore.

Here's another figure that captures just how wild the ongoing frenzy is-Rs 14,000 crore has been raised from SME IPOs since 2012, nearly 43 per cent of which was raised in FY24 alone!

Clearly, all well-established dictums of equity investing are falling flat. The fear of missing out on bumper listing gains, which were recently capped by stock exchanges at 90 per cent, is trumping all caution, even when the quality of these mom-and-pop style businesses lacks serious credibility, and the pace at which they are cropping up raises concerns. There's little to wonder why the listing norms have only been getting tighter recently, and market regulator SEBI has been issuing advisories. But investors are paying no heed whatsoever. The below list captures this. We have laid out a few bizarre instances of strange SME businesses garnering astronomical investor interest. Take a look:

Resourceful Automobile (Sawhney Automobile)

This one is no news to anyone. Resourceful Automobile IPO recently sparked equal parts caution and amusement on social media. The reason? The auto dealership player, established in 2018, operates only two Yamaha dealerships in Delhi. It also has only eight employees, three working in the finance and legal department and two in operations.

Despite the small operations and negative cash flows, the IPO was subscribed 400 times, receiving bids of Rs 4,800 crore against its issue size of Rs 12 crore! Responding to the ridiculousness of the situation, a user quipped on X (formerly Twitter), ''Looks like a workshop from Karol Bagh can also do ipo now at 200 cr valuations''.

Broach Lifecare Hospital

Maple Hospitals, as it is known, began its operations in 2012, primarily offering cardiology-related procedures and treatment. Just a few weeks ago, it floated its IPO to raise Rs 4 crore, but got bids worth Rs 604 crore, an oversubscription of 151 times! The overwhelming response came despite the hospital operating only two branches in Bharuch and Ankleshwar in Gujarat, with only 40 beds!

HOAC Foods India

This is the most subscribed IPO of all time. HOAC Foods produces flour, spices, and grains, among other food products, under the brand Hariom. The company makes 55 per cent of its revenue from selling flour (chakki atta). Its IPO, floated in May 2024, was subscribed 1,834 times! The company got bids worth Rs 10,167 crore when it was raising just Rs 5.5 crore! This amount is only slightly short of the entire market cap of the company's BSE-listed small-cap peer LT Foods.

Kody Technolab

Kody Technolab, incorporated in 2017, offers full-stack software development solutions to help businesses undertake their digital transformation. The company last year in September raised Rs 27.5 crore from its IPO that had received bids worth Rs 1,239 crore!

What's more astonishing is that it commands a market cap of Rs 2,185 crore on a sales of Rs 17 crore and net profit of only Rs 4 crore. This is a result of the stock's gobsmacking rally of 21 times (1,982 per cent) in the last year. From a listing price of Rs 160 on September 27, 2023, it is now trading at Rs 3,247 apiece!

Sungarner Energies

Sungarner Energies deals in power solutions and products like UPS systems, batteries, inverters, and solar panels. It raised Rs 53 crore from its IPO last year in August, which had received bids worth Rs 7,340 crore! It reported a profit of just Rs 1.04 crore in FY24 but commands a market cap of Rs 164 crore, primarily due to investor interest in the solar and renewable energy theme.

TGIF Agribusiness

This agri-player makes over 95 per cent of its revenue from farming pomegranate only! In May 2024, TGIF Agribusiness raised Rs 6.4 crore from its IPO, which was subscribed 35 times, with the bids amounting to Rs 226 crore. In FY24, it reported revenue of Rs 1.53 crore and net profit of Rs 67 lakh. Amusingly enough, the company discloses no other information about its financials, besides the headline numbers.

Investors' corner

Small businesses lacking fundamental parameters getting gigantic subscriptions makes one thing clear. The market is awash in money looking for a home. And it is dangerously finding its way to avenues, which are the antithesis of all investing principles. Thus, in the hurly-burly, hold on to caution more than ever. Don't lose sight of the fact that the regulatory scrutiny of SME IPOs is far less stringent. If you need more convincing to avoid these IPOs, just google "SEBI bars SMEs" and see for yourself.

Also read: Small is (not really) beautiful