Mumbai: TrafikSol ITS Technologies Ltd., which had a strong IPO, faced a setback when the BSE postponed its listing. The decision came after complaints from investors about how the ₹44.87 crore raised in the IPO would be used. The market regulator, SEBI, does not oversee SME IPO approvals, so the complaints were forwarded to the BSE, which manages these listings.
Concerns about SME IPOs have been growing. Recently, a small motorcycle dealership in Delhi had its IPO oversubscribed by 400 times for a ₹12 crore issue. In August, SEBI raised alarms about misleading practices in the SME market and warned investors about overly optimistic projections from some SMEs. SEBI is also considering more regulations on SMEs, according to a Bloomberg report in September.
The complaints about TrafikSol were shared on social media, with investors questioning the company’s plan to spend ₹17.7 crore (about 40% of the total funds raised) to buy software from a company called Oasis Corpcare. Oasis has only ₹1 lakh in paid-up capital and hasn’t filed any financial reports since 2021. Oasis offers services in auditing, legal, and bookkeeping, but concerns were raised about its legitimacy.
TrafikSol, founded in 2018, focuses on intelligent transportation systems (ITS) and automation solutions. The company has shown strong performance, with 80% revenue growth and a 153% increase in profit in FY24 compared to FY23.
BSE’s Response
On Monday, the BSE issued a circular stating that TrafikSol must keep all the IPO proceeds in an escrow account until it could address the concerns raised by the complaint and a social media video. The next morning, BSE issued another notice postponing the listing until TrafikSol resolved these issues. This delay has sent a clear message to chartered accountants and merchant bankers to ensure they do thorough due diligence before handling IPOs.
After the postponement, the grey market premium (an unofficial market where shares are traded before listing) for TrafikSol dropped to zero from ₹95 a share. The IPO price band was ₹66-70, and the public issue was oversubscribed by 318 times in the retail category.
SEBI had previously warned in August that some SME companies or their promoters make public announcements after listing that create an overly positive image of the company. These announcements are often followed by actions like bonus issues, stock splits, or preferential allotments.
According to Zerodha, from FY21 to Q1 FY25, 201 companies raised ₹4,292 crore through IPOs on the BSE’s SME segment, while 270 companies raised ₹8,126 crore on NSE’s SME segment. During the same period, mainboard IPOs raised ₹3.27 trillion.
SEBI is considering tighter controls over SME listings, including closer monitoring of how companies use IPO funds and stricter checks on merchant bankers’ due diligence. SEBI is also thinking about requiring a longer track record of profitability and more detailed financial statements for SMEs. However, SEBI may not take over the listing approval process for SMEs, leaving that to stock exchanges as requested by some investors.
India’s SME market has seen significant growth since the pandemic, with some IPOs drawing extreme interest despite questions about the quality of the offerings. Recently, a small motorcycle dealership’s IPO with just two outlets and eight employees was oversubscribed more than 400 times, raising concerns about the reliability of these listings.
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