SME IPOs are on fire, but could also singe

livemint.com:

₹21-crore IPO. Revenues of this Mumbai-based content creator for TV channels and streaming platforms have surged at an average annual rate of 65% in the last three years to ₹48 crore in 2022-23. Similar growth buoyancy is seen among the top 10 constituents of the BSE SME IPO index, as on 31 August.

While the index had 67 companies, these 10 companies accounted for a 57% weight of the index. Of these 10 companies, five grew their revenues at a compounded annual rate of above 40% for the last two or three years. In other words, they are doubling revenues every two years.

But, equally, there are companies in this set that are seeing modest or negative revenue growth. Discretion is called for with SME IPOs. For one, these IPOs undergo less scrutiny than IPOs on the main board of stock exchanges.

Companies wanting to list on the SME board have their offer document vetted by the stock exchange on whose SME board they wish to list, and not the capital market regulator. The bar for them is also lower in terms of size, track record and shareholding. Despite variances in business performance, the BSE SME IPO index, which captures the top end of these listings, has shown an unabated increase.

But break that down, and go deeper in the SME sets, and the picture moderates. On the BSE, a smaller share of IPOs between 2017 and 2023 on the SME board have given positive returns as compared to the main board. Further, barring years like 2020 and 2023, about 40-50% SME IPOs are currently in the red.

Yet, there is an ongoing fervour for SME IPOs. One measure of this is the subscription garnered by the likes of Digikore Studios, Inspire Films and Saakshi Medtech. Another measure is that of the 23 IPOs that were open for subscription in the