These SME IPOs broke the chain of negative IPO returns. Here’s why

Getting allotment in a small and medium enterprises (SME) initial public offering (IPO) in early 2024 felt like hitting the jackpot. For many investors, it was enough to fund a grand wedding or a dream vacation.

SME IPOs were the talk of the town, delivering incredible returns and turning retail investors into overnight success stories. However, the tables turned as the year progressed.

SME IPOs, known for their high risk and reward, revealed their volatile nature in 2024 as declining investor sentiment led to stock collapses, with 67 of 225 issues now trading in the red. 

Weak listings like BikeWo GreenTech and Kalana Ispat dampened enthusiasm, slowing market activity. 

In November so far, only one SME IPO came to market in sharp contrast to early months of the year, when multiple listings flooded the market. The slowdown thus reflected increasing uncertainty and ebbing investor confidence.

Despite all this, the year wasn’t all doom and gloom. Among all the challenges, some SME IPOs did well proving that if selected well, this racy segment of the market had something solid to offer after all.

Let's take a peek into three SME IPOs that have given the highest return for the investors in 2024, breaking the chain of negative returns and providing a ray of hope for the future of SME investing.

Owais Metal and Mineral Processing

Incorporated in December 2022, Owais Metal and Mineral Processing has emerged as a shining star in the SME IPO space.

Led by Saiyyed Owais Ali, the company operates in the production of manganese oxide, MC manganese, and wood charcoal, alongside mineral processing of quartz and manganese ore.

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Listed on 4 March 2024, at an IPO price of ₹87, the stock skyrocketed 187.4% on debut, opening at ₹250. Since then, its meteoric rise has resulted in a staggering rally of 1,327.1% in 2024, making it the best-performing SME IPO of the year.

Key Drivers of the Rally

Expansion into quartz manufacturing: The initiation of commercial production at its newly established quartz stone slab manufacturing unit in Udaipur, Rajasthan, has significantly boosted production capacity and market reach.

Impressive financial performance: In H1 FY25, the company reported a threefold increase in revenues to ₹1.1 billion, driven by higher production and surging demand. Profit after tax (PAT) surged to ₹247.2 million, propelled by higher commodity prices, operational efficiency, and volume growth.

The stock is currently trading at a price-to-earnings (P/E) ratio of 66.6, reflecting investor enthusiasm. Yet, robust fundamentals back its high valuation, with a return on equity (RoE) of 44.9% and a return on capital employed (RoCE) of 52.1%.

Adding to its momentum, Owais Metal and Mineral Processing recently secured the status of preferred bidder for the Bhukiya-Jagpura gold mining lease block in Rajasthan's Banswara district, home to one of India’s largest gold reserves. This acquisition is expected to expand production capabilities and bolster the company’s market standing.

Australian Premium Solar (India)

Incorporated in 2013, Australian Premium Solar (India) has emerged as a standout performer in 2024, with its stock rallying by an impressive 840.9% since its listing.

The company, a leading manufacturer of monocrystalline and polycrystalline solar panel modules, also offers engineering, procurement, and construction (EPC) services for diverse applications in the residential, agricultural, and commercial sectors.

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Listed on 18 January 2024, at an issue price of ₹54, the stock debuted at ₹140—an impressive 159.3% premium. The subsequent rally has been driven by strong financial performance, strategic order wins, and expansion initiatives.

Key Factors Behind the Rally

1. Big order wins and strategic partnerships: In August 2024, the company secured a significant ₹154.7 million order for mono panels and other solar products, showcasing growing demand for its offerings. Partnerships with prominent players like Adani Renewable Energy further cemented its reputation in the renewable energy space.

2. Financial performance in H1 FY25: The company’s results for the first half of FY25 highlighted robust growth:

Revenue: Surged 101.5% YoY to ₹1.6 billion, driven by increased demand and successful execution of large-scale orders.

PAT: Jumped 403% YoY to ₹131.1 million, supported by a favorable shift in the revenue mix, with high-margin segments like pumps contributing significantly to profits (rising from 3.15% to 31.35% of revenue).

3. Ambitious growth initiatives: Australian Premium Solar is gearing up for future expansion with bold plans, including:

Topcon solar panel manufacturing: A new 250 MW capacity unit, operational by FY25.

Solar cell manufacturing: Plans to launch production within 18-24 months to achieve vertical integration.

Export expansion: Targeting the U.S. and neighboring markets, alongside scaling up its EPC vertical for better margins.

The company’s shift towards high-margin offerings, like solar pumps, has bolstered profitability and operational scalability.

The company is currently trading at a P/E ratio of 61.2, reflecting investor confidence in its growth potential. With an ROE of 19.6% and ROCE of 22.3%, Australian Premium Solar demonstrates strong fundamentals, justifying its premium valuation.

Alpex Solar

Incorporated in August 1993, Alpex Solar specialises in manufacturing solar panels using monocrystalline and polycrystalline technologies. Its diverse offerings include solar PV modules, solar power plants, AC/DC solar water pumps, bifacial modules, mono PERC, half-cut modules, and alluminum frames.

Alpex also provides EPC solutions for a comprehensive solar ecosystem.

Listed on 15 February 2024, at ₹329—an 186.1% premium to its issue price of ₹115—the company has witnessed a phenomenal stock price rally of 659.6% in 2024.

Key catalysts for the rally

1. Order wins and sectoral tailwinds: Alpex Solar's growth story in 2024 is underpinned by major order wins, including:

Contracts for solar water pumping systems under the PM-KUSUM scheme.

High-value supply deals with Public Sector Undertakings (PSUs).

The Indian government’s aggressive push for renewable energy adoption through subsidy programs and rural electrification has further boosted investor confidence, aligning with Alpex Solar's capability to capitalize on these opportunities.

2. Strong financial growth: The company's H1 FY25 financial performance reflects robust growth:

Revenue from operations: ₹2.7 billion, up 29.6% YoY from ₹2 billion in H1 FY24, driven by increased order execution and demand.

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PAT: ₹250.7 million, up 149.9% YoY, supported by diversification into green hydrogen and execution of major solar module contracts worth ₹5,251.5 million.

3. Expansion: Alpex Solar has set ambitious growth targets:

Scaling solar module manufacturing capacity to 2.4 GW by 2026.

Phased commissioning of a 1.6 GW solar cell facility to achieve vertical integration.

Backward integration with plans to produce 1,000 tons of aluminum frames annually.

Expanding its independent power production to 100 MW to strengthen market positioning.

Currently trading at a P/E ratio of 49.9, Alpex Solar enjoys strong investor confidence. Key performance metrics include:

ROE: 26.2%

ROCE: 27.4%

These figures reflect efficient capital utilisation and underscore the company’s long-term growth potential in the renewable energy sector.

Alpex Solar’s extraordinary 2024 rally exemplifies the wealth-creation potential of well-positioned SMEs in niche sectors. With a robust financial performance, strategic diversification, and favourable market dynamics, Alpex Solar is poised for sustained growth, reinforcing its leadership in the renewable energy space.

Conclusion

SME IPOs are a high-risk, high-reward segment, offering unique opportunities alongside significant volatility and unpredictability. 

While 2024 saw notable successes like Owais Metal, Australian Premium Solar, and Alpex Solar, it also underscored the dangers, with 67 IPOs trading at a loss. 

For more such analysis, read Profit Pulse.

Success in this space demands meticulous research, patience, and an understanding of external factors like policies and market trends. SME IPOs, while capable of delivering stellar returns, require active risk management and a focus on long-term value creation. They are not suited for impulsive or risk-averse investors.

Note: We have relied on data from www.Screener.in, and Chittorgarh.com throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.

The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only. 

Ekta Sonecha Desai has a passion for writing and a deep interest in the equity markets. Combined with an analytical approach, she likes to dig deep into the world of companies, studying their performance, and uncovering insights that bring value to her readers.

Disclosure: The writer and her dependents do not hold the stocks discussed in this article.