SME IPOs for Q1FY24: Best and Worst Performing

Even as the mainboard IPO scene was fairly tepid, most of the action was focused on the SME IPO segment. The SME IPO segment saw a total of 32 IPOs in the June 2023 quarter that got listed (which is what we consider for our benchmarking). These 32 IPOs raised ₹1,017 crore and was largely dominated by Spectrum Talent Management, the only SME IPO to raise more than ₹100 crore via IPO. We also evaluate whether there is a linkage between the subscription level and the post-listing returns on the IPO stock?

Best SME IPO performers in Q1FY24 by returns

The table below captures the 10 top SME IPOs in terms of returns. Out of the 32 SME IPOs in the quarter, 23 are trading at a premium to the issue price while 9 are trading at a discount. However, 7 out of these 9 underperforming IPOs listed in June so to be fair, we must give them some more time to perform in the market. Here is the ranking of the top 10 SME IPOs by absolute post-listing returns over the IPO issue price.

Data Source: NSE

That is an extremely interesting piece of data. The 10 best SME IPOs have all given more than 100% returns post listing. The range of returns vary from 100.74% to 253.75% returns. Incidentally, the best performing SME IPO was a BSE SME IPO, with 8 out of the top 10 performers being NSE SME IPOs. The top 10 IPOs by returns accounted for 28% of the SME IPO fund raising in the June quarter. Let us now turn to the worst performers by returns in the SME IPOs for the quarter to June 2023.

Worse SME IPO performers in Q1FY24 by returns

The table below captures the 10 bottom SME IPOs in terms of returns in the June 2023 quarter. Remember not all have given negative returns; but 8 have given negative returns, one is flat and one has given positive returns among the bottom performers. Here are the bottom 10 SME IPOs by absolute post-listing returns over the IPO issue price.

Data Source: NSE

Out of the bottom 10 SME IPOs in terms of returns, the worst returns are -27.79% by Cosmic CRF Ltd. Two out of the 10 worst performers are BSE SME IPOs and the rest are NSE SME IPOs. These bottom 10 IPOs accounted for 39% of the IPO collections in the June 2023 quarter, so apparently the percentage of people in the bottom IPOs are more compared to investors in the top performing IPOs. Once again, seven out of the ten bottom performers got listed in June, so time may also be a factor and we need to keep that in mind.

Best SME IPO performers in Q1FY24 in terms of subscription levels

The table below captures the 10 top SME IPOs in terms of extent of subscription. Generally, larger IPOs get lesser oversubscription, but that would be too subjective so we have avoided the temptation of getting into that area. Let us look at subscriptions at a macro level. Out of the total SME IPO issue size of ₹1,017 crore in Q1FY24, the total interest received from investors was to the extent of ₹42,156 crore, implying an overall oversubscription for the quarter at 41.46 times. That is very impressive.

Data Source: NSE

It is interesting to note that 9 out of the 10 IPOs ranked highest on subscriptions have given positive returns post listing. That means, the extent of subscription surely matters. These top 10 IPOs by subscription accounted for 24% of the total fund raising in the quarter. Does the subscription level matter for returns. Prima facie, the table above tells us that it does matter. Out of the top 10 in terms of subscription, 9 have given positive returns with 2 IPOs giving over 200% returns and 6 out of the 10 IPOs giving above 100% returns. Clearly, returns are getting biased in favour of stocks that get substantially oversubscribed.

Worst SME IPO performers in Q1FY24 in terms of subscription levels

The table below captures the 10 bottom SME IPOs in terms of extent of subscription. Generally, larger IPOs get lesser oversubscription, but that would be too subjective so we have avoided the temptation of getting into that area. IPOs with the lowest level of subscription accounted for 38% of the money raised in the quarter by SME IPOs.

Data Source: NSE

It is interesting to note that 3 out of the 10 IPOs ranked lowest on subscriptions have given negative returns post listing, but 7 have still given positive returns. Ironically, the company (Exhicon Events) which was the top performer in the quarter by returns was also the lowest in terms of subscription. Five out of these 10 bottom subscription IPOs have given returns of more than 30% post listing. The moral of the story appears to be that while the extent of subscription does matter, the real thing is about how much the company and the merchant bankers leave on the table for investors. That can change the story even with fairly tepid subscription.

What we read in the SME IPO data?

There are some interesting takeaways from the IPO data on SME IPOs in the June 2023 quarter. There are a total of 32 SME IPOs that got listed in the quarter, so we have enough data to move around the coins on the chessboard. The median subscription of all the 32 SME IPOs in the quarter was 136.66 times while the average was around 41.46 times. That shows there is substantial appetite in the market for SME IPOs and that has also been borne out by the performance of these SME IPOs post listing. Here are some key takeaways.

• During the quarter ended June 2023, a total of 32 SME IPOs raised ₹1,017 crore between them. However, the investors interest in the stocks was to the extent of ₹42,156 crore which means all the IPOs in aggregate during the quarter got subscribed around 41.46 times, which is an attractive level of subscription.
   
• If you calculate the arithmetic returns of the 32 IPOs in the quarter, it stands at a healthy level of 56.28%. However, due to oversubscription, the actual returns would be much lower, but we will not get into that. The fact is that had an investor just invested in all the SME IPOs, they would have made impressive returns.

With the mainboard IPOs going slow, it is the SME IPOs that have sustained interest in the IPO markets. These SME IPOs have emerged as a distinct asset class. That is good news for the investors, who now have one more asset class to seriously look at.