2023 in review: SME IPOs set a record breaking year with 179 listings, will the boom continue in new year?

With 179 SME IPOs listed, it is evident that this year has been a big year for small and medium sized enterprises (SME) IPOs, according to data available on trendlyne.com. Impressive listings were seen in SME IPOs. Indeed, a large number of SME IPOs in 2023 were substantially oversubscribed, indicating robust investor interest supported by impressive post listing results.

Out of the 179 SME IPOs, RBM Infracon Ltd, Gayatri Rubbers and Chemicals Ltd, Remus Pharmaceuticals Ltd, Vishnusurya Projects And Infra Ltd, Meson Valves India Ltd, Exhicon Events Media Solutions Ltd, Bondada Engineering Ltd, Sahana Systems Ltd, Vasa Denticity Ltd, and Srivari Spices and Foods Ltd are the top 10 SME IPOs for the year, as per data available on trendlyne.com.

RBM Infracon's value has increased by 1,131.1% over its issue price of 36 since listing on January 4, 2023. Gayatri Rubbers and Chemicals has seen a 523.7% increase in value since going public on February 7, 2023, compared to its issue price of 30. Meson Valves India, Vishnusurya Projects And Infra, and Remus Pharmaceuticals are next on the list with gains of 522% to over 499%.

Bizotic Commercial Ltd (down 70% from its issue price of 175), Patron Exim Ltd (down 57.4% from its issue price of 27), SVS Ventures Ltd (down 56% from its issue price of 20), Cell Point (India) Ltd (down 54.8% from its issue price of 100), Vrundavan Plantation Ltd (down 46.4% from its issue price of 108), Synoptics Technologies Ltd (down 44.5% from its issue price of 237), Vivaa Tradecom Ltd (down 42.6% from its issue price of 51), Spectrum Talent Management Ltd (down 38.9% from its issue price of 173), Saroja Pharma Industries India Ltd (down 36.9% from its issue price of 84), and Mangalam Alloys Ltd (down 36.1% from its issue price of 80) have been among the top laggards, as per data available on trendlyne.com.

What factors drove the SME IPO segment in 2023? The success of the primary market coupled with the bounce in the secondary market led to a lot of interest in the SME IPO space, according to . Because most of the issues were subscribed many hundreds of times over, most of them opened at 2x or 3x on the listing day and continued to rise in value before the inevitable correction occurred.

Recently, there has been a trend reversal in which even highly subscribed issues have debuted below expectations on the day of listing. According to Kejriwal, funding for IPOs is limited to 1 crore. However, he clarified that although this has ceased in mainboard issues, people are still borrowing money and applying for SME IPOs because allotment is still done based on a proportionate basis, meaning that the more applications received, the more money each individual is given.

When compared to similar businesses on the mainboard, SME valuations at issue price are significantly higher. The listing premiums these issues receive and the trading premium that occurs after listing should be added. When a larger peer is available on the mainboard at a valuation of perhaps one third, one may wonder why someone would purchase a SME IPO.

"I believe in the next couple of days at best maybe a week regulator Securities and Exchange Board of India (SEBI) should come up with some interesting developments, which would affect the way the primary market behave on the SME platform. As a market commentator, I too believe very strongly that such action is not only warranted but is long over due," said Kejriwal.

Is the SME IPO boom sustainable ahead ? Here's what experts say “I’m happy that the SME exchange has created so much liquidity for smaller businesses clubbed with access to capital via the power of equity. That said, I think we indeed have a problem at hand on this side of the exchange, as the under regulation here has meant that many “sham" issues have found access to the markets at valuations, which makes zero sense.

These ugly ducklings spoil the name of the entire segment. The regulator must monitor better what’s happening here, particularly the bankers who are charging as much as 20% placement commissions to provide end to end issue management. This is an apparent problem at hand, and until it’s not fixed, I will stay away from this space," said Gulati.

Further, Mohit explained that the fear of missing out (FOMO) driven party will stop, the small time audited numbers will start showing gaps, and owing to low liquidity, retail investors will eventually burn their hands in this space, holding onto junk stock. It's unfortunate that in this madness, so many good SMEs will miss out on the opportunity to list well and eventually move to the main exchange.

According to Saraf, the IPO surge extends to the SME space as well, with 2023 breaking records with 156 IPOs, raising more than 4,200 crore. The average ticket size in SME IPOs has increased from 13 crore in 2021 to 18 crore in 2022 and 25 crore in 2023. At almost $1 trillion in value today, SMEs drive economic participation in both urban and rural areas and account for 36% of manufacturing output.

With ongoing legislative support to expand credit availability via non banking and banking channels, India's SME sector is well positioned to develop high caliber businesses that cater to international markets. According to Ojha, India is the largest SME market globally, and SME forms the backbone of the Indian economy.

The SME sector contributes nearly 30% of the country’s GDP. India in 2023 witnessed an astounding IPO listing. SME IPOs largely contributed to the race, and 135 SME IPOs have been able to raise over 3,500 crore this year. “However, we believe the SME IPO boom might not sustain itself in the coming years; reports suggest many activities in this segment can be found doubtful and suspicious," said Mahesh.

Vivek Goel, Managing Partner, Tailwind Capital Advisors According to Vivek Goel's report, "Indian IPO Landscape in 2023: A Review and Future Outlook," the number of SME IPOs in the country has been impressive. The fact that over 150 companies have performed well after listing and are trading at a premium ranging from 20 (109 companies) to 100% (59 companies) indicates that investor appetite for SME IPOs in 2023 has been strong.

"Total of 181 SME IPOs have been able to raise over 4,643 crore rupees this year. We are expecting this boom to continue next year with the upcoming elections keeping markets optimistic. As India aims to become a $5 trillion economy, SMEs and startups will play a pivotal role given their significant economic contribution.

Equity investments in Indian SMEs present a major opportunity to help meet this growing credit need. Private equity firms are well positioned to capitalise on this opportunity by financing innovation, job creation, and scaling among emerging SMEs and startups. The rise of fintechs and the growing digital lending market, expected to reach $515 billion by 2030, have enabled improved financial access for underserved customers like SMEs.

PE firms have invested $17.8 billion in Indian fintechs between 2019 2023 to support SME and startup growth through innovative solutions. By aiding SMEs’ digital transformation, PE investors are driving value creation. Livemint tops charts as the fastest growing news website in the world to know more.

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