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A small firm with just eight employees and two showrooms, Resourceful Automobile, a two-wheeler dealership based in Delhi, has achieved with its ₹12-crore Initial Public Offering (IPO). The company’s IPO has been oversubscribed more than 400 times, drawing bids worth ₹4,800 crore, leaving market experts astonished.
The Resourceful Automobile IPO saw an overall subscription of 418.82 times, with retail investors leading at 496.22 times, while the "Other" category saw a 315.61 times subscription by August 26, 2024. These numbers are exceptional for an SME IPO, sparking curiosity about the factors driving such immense interest.
Specializing in the sale and servicing of Yamaha motorcycles and scooters, Resourceful Automobile operates with a small team of eight employees: three in finance and legal, two in sales and marketing, one in HR and administration, and two overseeing operations.
Adding to the surprise, the grey market premium (GMP) suggests potential gains of nearly 90%. As of the latest update, the GMP stood at ₹105, implying an estimated listing price of ₹222 per share, representing an 89.74% expected gain. The company offered 10.2 lakh shares at a fixed price of ₹117 each. The IPO, which opened on August 22 and closed on August 26, required retail investors to purchase a minimum of 1,200 shares, equating to ₹140,400, while High Net-Worth Individuals (HNIs) had to invest in at least two lots, amounting to ₹280,800.
The IPO is scheduled to be listed on the BSE SME platform on August 29, 2024. Swastika Investmart Ltd served as the lead manager, with Cameo Corporate Services Limited as the registrar and Nikunj Stock Brokers as the market maker.
The unexpected subscription figures have sparked significant discussion on social media. Veteran fund manager Samir Arora commented on X (formerly Twitter), "Resourceful Automobile turned out to be resourceful indeed." Another user, @EquityInsightss, called the subscription level "insane" given the company's negative cash flow.
According to its red herring prospectus (RHP), Resourceful Automobile plans to use the IPO funds to expand its operations, including opening two more showrooms in Delhi-NCR, repaying debt, and addressing working capital needs.
Deepak Shenoy, Founder of Capital Mind, weighed in, noting that while he hadn't analyzed the company in detail, its valuation of ₹31 crore for a firm that made ₹1.5 crore last year isn't outrageous compared to other IPOs. He highlighted the risks that investors must consider, using Jet Airways as an example of a company that continued operating despite significant challenges.
Shenoy also pointed out that in the past, even when he warned on social media that a company's equity was likely to be wiped out, people still invested heavily, resulting in upper circuits.
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