SME IPOs: Two recent listing signal a quality shift—for the better

Three days before that, on 24 January, the shares of Mumbai-headquartered EMA Partners India Ltd debuted at ₹156.5 on the NSE Emerge platform, a premium of 26.2% over the issue price ₹124.

The two companies, as far apart as chalk and cheese, received an overwhelming response.

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Capital Numbers’ ₹169 crore initial public offering (IPO) was subscribed more than 90 times the 6.44 million shares on offer. Its non-anchor portion of 4.61 million shares was subscribed more than 125 times. Non-institutional investors subscribed 219 times their allocated portion, while qualified institutional buyers (QIBs) subscribed 122 times their reserved quota. Retail investors subscribed 72.99 times their portion.

EMA’s ₹76 crore SME IPO, which opened for subscription on 17 January, was booked 221.1 times overall. The IPO saw bids for over 901.4 million shares against 4.08 million shares on offer. The retail segment of the IPO was booked 167.29 times on the last day. The non-institutional investor portion was subscribed 444.42 times, and the QIB part was booked 147.69 times.

However, the companies’ respective business propositions and financials are par for the course for any successful IPO, SME or otherwise. Even the sizes of their IPOs are not very special. Some might consider Capital Numbers’ IPO size to be large for an SME IPO, but 2024 saw three larger IPOs: Danish Power’s ₹197.9 crore, KP Green’s ₹ ₹189.5 crore, and Sahasra Electronic Solution’s ₹186.2 crore.

What's the differentiating factor?

What makes these IPOs different and interesting is the first-of-its-kind involvement by WhiteOak Capital Management, a mutual fund.

The SME platforms were established in 2012 to help India’s small and medium-sized enterprises raise modest growth capital. BSE Ltd launched the BSE SME platform, and the National Stock Exchange of India Ltd (NSE) introduced NSE Emgerge in the same year.

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A few days ago, the Association of Investment Bankers of India (AIBI) said in the last six fiscal years alone, nearly 600 SME IPOs would have taken place across these platforms.

Yet, none of these IPOs has attracted direct mutual fund investments at scale in all these years.

In a first, WhiteOak Capital, through its three schemes, bought 190,000 shares of Capital Numbers (10% of the anchor portion) and 582,000 shares of EMA (33%).

But why?

Was there something special about these IPOs, or was this a predictable outcome of other recent successful IPOs?

Both, said Abhishek Sharma, founder of GYR Capital Advisors, the lead manager of Capital Numbers’ IPO.

“One, SME IPOs are generally perceived as catering to localized or niche markets. This limits their appeal to investors seeking scalable, internationally competitive opportunities. Two, mutual funds prioritize companies with robust compliance, governance, and certifications. Many SME companies fail to meet the stringent standards expected by such investors," he said.

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“For example, the size and structure of Capital Numbers’ IPO, along with its clear strategic plans for using the IPO proceeds, make it more aligned with quality institutional investors’ expectations than traditional SME IPOs."

Capital Numbers’, which offers full-service digital engineering solutions to companies of all sizes at every stage of the business growth cycle, plans to use the IPO proceeds, as of now, for acquisitions, investments in AI/ML, generative AI, cloud engineering, blockchain, and other technologies.

On the other hand, EMA Partners, a global executive search firm, intends to use the proceeds to augment the company and its subsidiaries' leadership teams, capex for upgrading its existing IT infrastructure, repayment and pre-payment, in full, of old borrowings towards the purchase of office premises, and acquisitions.

Sharma also mentioned the success of earlier larger SME IPOs as a convincing factor. “The large SME IPOs in 2024 gave excellent gains on listing and subsequently much higher gains than the main-board IPOs. That has undoubtedly raised serious investors' comfort and confidence levels."

What does it mean for 2025?

The current volatility in the Indian markets might also persuade companies planning IPOs of less than ₹200 crore to choose the SME listing over the main board. A main-board listing takes anywhere between one and one-and-a-half years and involves stringent post-IPO reporting and compliances.

An SME listing, on the other hand, has fewer post-listing requirements and takes about four months to complete. According to Sharma, since the transfer to the main board happens automatically in three years, many IPO-seeking companies see the SME listing as a step that prepares them for the regulatory grind of the ensuing main board listing.

Now that the die has been cast with WhiteOak investments in these start-of-the-year IPOs, 2025 will likely see a surge of SME IPOs with similar heft involving the participation of mutual funds and a more diverse set of institutional investors.

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It remains to be seen if the much-anticipated IPOs of Safe Enterprises Retail Fixtures Ltd, Unified Data-Tech Solutions, Nakshatra Asset Ventures, Monarch Surveyors and Engineering Consultants, likely to happen by the end of Q1FY26, will see more of such “quality" investors.

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