The Securities and Exchange Board of India (SEBI) has raised concerns about certain Small and Medium Enterprises (SME) companies projecting an unrealistic picture of their operations. SEBI highlighted that some of these companies, after getting listed on the SME platform of stock exchanges, have engaged in practices that mislead investors about their true business performance.
These companies, along with their promoters, often make public announcements that create a positive image of their operations. These announcements are frequently followed by corporate actions like bonus issues, stock splits, and preferential allotments, all of which can create a misleading sense of success. This has led to an increase in investor interest, allowing promoters to off-load their holdings at inflated prices.
A recent example that has left many puzzled is the IPO of Resourceful Automobile, a company with just two Yamaha dealership showrooms and eight employees. Despite its modest scale, the IPO attracted nearly 400 times the number of shares on offer, with bids totaling approximately ₹2,700 crores for a ₹12 crore IPO. This overwhelming response from investors, especially in the retail segment, has sparked a strong buzz on social media.
“Resourceful Automobile SME IPO is crazy. Two Yamaha dealership showrooms and eight employees. The IPO was asking ₹12 crores and got ₹2,700 crores in bids. Is no one asking what the terminal value of two dealership showrooms and eight employees is?” remarked a Twitter user, echoing the growing concern over the unrealistic portrayal of such companies.
SEBI’s warning serves as a reminder for investors to exercise caution and conduct thorough research before investing in SME stocks, especially when the company’s operations and business models appear underwhelming compared to the hype generated.
