Did you know that quite a number of IPOs from companies on the main stock market board were cut in half in 2022 compared to the previous year? However, IPOs from small and medium-sized businesses (SMEs) enjoyed phenomenal success, increasing by a factor of two from a year earlier. There were 108 small and medium-sized enterprise initial public offerings (IPOs) in 2022, up from 60 in 2021, whereas there were only 36 mainboard IPOs, down from 64 in 2021. Analysts found that retail and high-net-worth investors showed the most interest in SME initial public offerings (IPOs) due to the potential for multi-bagger listing returns. In this article, let us discuss how SME IPOs doubled in 2022.
Top IPOs of 2022 Exceed Stock Price Targets with Massive Subscribers
DroneAcharya Aerial Innovations’ initial public offering (IPO) in Pune was purchased 262 times on its final day, and investors were rewarded with listing returns of 88%. Both the retail and HNI tiers reached their maximum capacity of 330 and 388 subscribers.
Annapurna Swadisht, a snack and food product manufacturer in Kolkata, had its IPO bought 190.49 times and was subsequently listed at a premium of 80%. Another software solutions provider, Olatech Solutions, received 598 times as many subscriptions as available shares. It delivered as expected, with a 99% increase in value after listing.
The QIB (qualified institutional portion) was 46.21 times subscribed to DroneAcharya AI and 18.34 times subscribed to Annapurna Swadisht. However, QIB investors were unable to purchase Olatech Solutions shares. According to the BSE Stock Exchange, a company seeking to file an SME IPO must have a net worth between 1 crore and 25 crores.
Olatech Solutions, Arham Technologies, Baheti Recycling Industries, AMBO Agritec, and Veekayem Fashion and Apparel are the top five smallest initial public offerings (IPOs) in 2022, with the largest subscribers.
Also Read: Small Business, Big Returns: Tech Stocks Power MSME Growth
Rise of Tech Stock IPOs: Exploring the Allure of Small Companies Going Public
Investors are hesitant to put money into mainboard IPOs following the collapse of this year’s budding IPOs. As seen by the record-breaking subscriptions for these issues, many HNI and retail investors have shifted their focus to small and medium-sized enterprises (SMEs). Investors’ enthusiasm for SME IPOs has not been dampened by the larger minimum investment amounts or reduced offering sizes. However, compared to ordinary IPOs, the minimum investment for SME IPOs is fairly high at 1 lakh. This is in contrast to the 15,000 required for regular IPOs.
Small and medium-sized enterprise IPOs are less expensive than their larger counterparts. In 2022, the average size of a normal IPO was 18.3 crore, while Rachana Infrastructure IPO, the largest in the SME market, had an issue size of 76.28 crores. Olatech Solutions’ initial public offering was the smallest IPO by a small or medium-sized enterprise, at 1.89 crores. Analysts claim that the prospect of multi-bagger profits on listing day is a major draw for investors to small and medium-sized enterprises’ initial public offerings. This year’s biggest multi-bagger was Phantom Digital Effects, which increased its share price by 229% on its listing day, followed by Agni Green Power, which increased its share price by 162%.
In 2022, “nearly 100 plus SME IPOs were launched,” said Ambareesh Baliga, according to Business Insider India. Of these IPOs, 30 were multi-baggers, with some even delivering 8x. BSE data shows small and medium-sized enterprises’ initial public offerings have fared better than large IPOs. When first listed, 12 of the BSE main board’s 36 businesses performed poorly, and 11 of the SME segment 52 equities fell in value. As per the Business Insider India reports, Deepak Jasani, head of retail research at HDFC Securities, said, “SME IPOs are going to continue because individuals are making a profit on their listing since they have high minimum usage and low float.”
Top-performing SME IPOs include:
- Veekayem Fashion and Apparel
- Olatech Solutions
- Baheti Recycling Industries
- Arham Technologies
- AMBO Agritec
Mainboard IPOs with the highest listing gains were:
- Dreamfolks Services
- Harsha Engineers
- Aether Industries
- DCX Systems
- Kaynes Technology
All You Need to Know About SME IPOs vs Mainboard IPOs
Baliga claimed that it was now simple to solicit financial backing for small and medium-sized enterprises (SMEs) due to the success of IPO investors. In addition, these IPOs face less scrutiny because stock markets sanction them. When a company files for an regular initial public offering (IPO), the SEBI (Securities and Exchange Board of India) must review the DRHP. Due to the failure in modern tech stocks, SEBI has instituted stricter disclosure requirements for companies seeking an initial public offering (IPO). However, IPOs from SMEs only need permission from the stock exchanges, not SEBI.
Experts also point out that SME equities are not as liquid as mainboard companies after listing because most investors only hold on for a short period. Despite being reasonably liquid on listing day, the liquidity of most small and medium-sized enterprise initial public offerings (IPOs) begins to decline progressively after two to three months. “In the first few days after listing, stock volumes are in the low lakhs per day, and a few travel from one circuit to another,” added Baliga.
The BSE SME and NSE SME stock exchange platforms both went live in 2012 and cater to small and medium-sized enterprises (SMEs). If the companies meet the requirements, they will be allowed to move to the exchange’s mainboard. According to SEBI regulations, it will take an average of 2 years from the listing date for a small or medium-sized enterprise to be eligible to move from the exchange’s SME platform to the main board.
SME issuances do not get significant attention from institutional investors. Institutions go for over 1,000+ crore market cap companies, indicating that the majority of investors are HNIs and retail customers. Analysts believe that most investors in small and medium-sized enterprises’ initial public offerings (IPOs) are seeking short-term gains. Because of their smaller size, institutional investors tend to avoid SME IPOs, another distinction between them and mainboard IPOs. Last but not least, Jasani stated, “Post 1 to 2 months post listing, these stocks usually come back to their intrinsic value, and there are very few cases where premium sustains.”
Endnote
Due to the high listing returns and stock price targets, small and medium-sized firms (SMEs) are gaining popularity among investors. Due to their cheaper expenses and the potential for multibagger returns on listing day, many investors are lured to SMEs. High returns make investing in SME IPOs appealing even though SME equities are less liquid than mainboard corporations.
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