SME With 2 Yamaha Showrooms Sees Mega IPO Demand — Reflects Market Dynamics, Says Deepak Shenoy

The recent SME initial public offering of Resourceful Automobile Ltd. with a 400 times subscription rate is drawing admiration as well as skepticism. With its two Yamaha dealership showrooms and a modest team of eight employees, the company raised eyebrows with its Rs 12 crore initial public offering, which attracted bids worth Rs 4,800 crore.

The disparity between the offering size and the subscription amount has sparked debate across social media.

Deepak Shenoy, founder and chief executive officer of Capitalmind Financial Services Pvt., dismisses the outrage over the IPO's extreme oversubscription, attributing it to the nature of the current market environment, rather than any inherent flaws in the offering.

The excess demand reflects a broader trend in smaller IPOs rather than genuine investor enthusiasm for Resourceful Automobile, according to him.

"Oversubscription nowadays doesn’t make sense to look at," Shenoy said. Investors often place bids without committing substantial funds, allowing them to earn interest on their money while waiting for allocation, he explained.

Oversubscription has been a persistent issue even when companies with dubious prospects were involved, Shenoy pointed out. The overwhelming response to Resourceful Automobile's IPO might not be a signal of its actual value, but rather a reflection of current market dynamics.

While Resourceful Automobile’s valuation ask of Rs 31 crore for a business that earned Rs 1.5 crore last year might seem steep, such valuations are not unprecedented in the IPO landscape, Shenoy said.

SME exchanges provide a crucial platform for small companies to raise capital and increase transparency, he said. Small firms face difficulties in securing private investment and having a public market option for such businesses is important, he said.

The IPO market is subject to fluctuations and speculative behaviors, Shenoy said.

"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 said.