Small is the new big: SME IPOs double in 2022, while mainboard IPOs halve

• In 2022, 108 SME IPOs hit the stock exchanges while only 36 mainboard IPOs were launched.
• Investors turned cautious about large IPOs after the public debuts of new age technology IPOs, last year.
• The minimum investment amount is nearly ₹15,000 for regular IPOs, but is higher at ₹1 lakh for SME IPOs.
• Besides, most of the SME IPOs have garnered huge demand from investors in the three day subscription period.

In 2022, initial public offering (IPOs) from companies listing on the main board of the stock exchange halved from last year. But, those from small and medium enterprises (SMEs) saw a stellar performance as their IPOs doubled from last year, all thanks to skyrocketing demand.

In 2022, 108 SME IPOs were launched as against 60 last year while only 36 mainboard IPOs were launched this year as against 64 last year.

The highest demand for SME IPOs came from retail and high networth individuals, who are lured by the promise of multibagger listing gains from these IPOs, analysts said, adding that institutional investors largely stay away from these public offerings.

For instance, the IPO of Pune-based DroneAcharya Aerial Innovations received an overwhelming investor interest – it was subscribed 262 times on its last day, which rewarded investors with listing gains of 88%. The HNI and retail portions were subscribed 388 times and 330 times, respectively.

Similarly, Kolkata-based Annapurna Swadisht, – which manufactures snacks and food products – was subscribed 190.49 times and later listed at an 80% premium. Olatech Solutions, a software solutions company, was another superhit among investors and saw the highest subscription in 2022 — at 598 times the shares on offer. It lived up its promise with listing gains of 99%.

DroneAcharya AI received 46.21 times subscription from qualified institutional portion (QIB) while Annapurna Swadisht was subscribed 18.34 times. However, in Olatech Solutions there were no stocks on offer for QIB investors.

A net worth between ₹1 crore and ₹25 crore is one of the listing requirements for SME IPOs on BSE, as per BSE Stock Exchange.

Top five SME IPOs with highest subscriptions in 2022

What is the big draw for SME IPOs?
After a blow up in new-age technology IPOs this year, investors have been wary of investing in main board IPOs. Many of these retail and HNI investors seem to have instead turned to SME companies as reflected in the sky-high subscriptions of these issues.

Neither the smaller issue sizes nor the large minimum investment amount of SME IPOs have dented investors’ interest. On the other hand, the minimum investment amount for an SME IPOs is quite large compared to regular IPOs – ₹1 lakh for SME IPOs versus nearly ₹15,000 for regular IPOs.

The size of IPOs in the SME space tends to be smaller than regular IPOs. The average size of a regular IPO in 2022 was ₹18.3 crore, while the biggest IPO in the SME space was of Rachana Infrastructure with an issue size of ₹76.28 crore. The smallest SME IPO was that of Olatech Solutions at ₹1.89 crore.

One of the biggest reasons for investors showing increasing interest in SME IPOs is multibagger returns on listing day, say analysts. Phantom Digital Effects was the top multibagger this year with 229% gains over the issue price on listing day followed by Agni Green Power with 162% returns on debut.

“Nearly 100 plus SME IPOs were launched in 2022, out of which 30 were multibaggers, some even giving 8x,” Ambareesh Baliga, an investment analyst, told Business Insider India.

As per data on the BSE, performance of SME IPOs has been much better than that of regular IPOs. On the BSE main board, 12 out of 36 companies made weak debuts, while 11 of 52 stocks from the SME segment slipped into the red on listing.

"SME IPOs generally will keep coming because people are making money on their listing due to high minimum application, low float (in terms of shares and market cap),”Deepak Jasani, head of retail research, HDFC Securities, told Business Insider India.

SME and mainboard IPOs with the highest listing gains

SME vs mainboard IPOs
Baliga said that it had become easy to raise money in the SME space because price performance has been good and IPO investors had made good money. Also, the scrutiny level is low as these IPOs are approved by stock exchanges.

It is important to note that when companies file a regular IPO, they need to submit the DRHP to the market regulator Securities and Exchange Board of India (SEBI). After the fiasco in the new-age tech stocks, SEBI has tightened disclosures for companies filing for IPO, to protect investors. However, SME IPOs only need approval from the stock exchanges and not SEBI.

Another key difference is that unlike mainboard stocks, SME stocks are not highly liquid post listing as most investors remain invested only for short term gains, analysts say.

“On listing day most SME IPOs are decently liquid, however, only after they are listed the liquidity starts falling gradually in 2-3 months. Stock volumes are a couple of lakhs per day in early days post listing and quite a few move from circuit to circuit,” said Baliga.

SME companies are listed on the NSE SME and BSE SME platforms of the stock exchanges that launched in 2012. The companies can migrate to the mainboard of the exchange after fulfilling certain conditions. SME companies will have to mandatorily be listed and traded on the SME platform for a minimum of two years from the date of listing before they can migrate to the main board of an exchange, as per SEBI guidelines.

Another difference between SME and mainboard IPO is that institutional investors typically stay away from SME IPOs because of their small size. “There is not much institutional interest in the SME issuances. Most of the investors are HNIs and retail as institutions typically go for over ₹1,000+ crore market cap companies,” said Baliga.

Most investors in SME IPOs are looking at short-term gains and very few stocks provide long-term value, according to analysts.

“Post one to two months (after listing), these stocks tend to come back to their intrinsic value and there are very few cases where premium sustains,” Jasani.

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